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Magellan Remains Positioned to Preserve Distribution Despite Disappointing Guidance

Magellan on Tuesday reported earnings, closing out a year which management described as having "the most challenging industry and economic conditions experienced in our 20-year history as a public company." Magellan's units slumped more than 4% on the update after management's guidance indicated that this year may not be much better. The firm's distributable cash flow (DCF) fell 20% in 2020, and Magellan's guidance called for DCF to decline another 2% this year. A gradual recovery in fuel demand and the recent completion of various expansion projects will help buoy cash flow, but these factors aren't expected to fully offset continued weakness in crude oil transportation and blending profits. Magellan's crude oil segment (34% of operating income) consists mostly of long-haul pipelines [...]

February 3rd, 2021|

Exxon Expects to Maintain Dividend as Breakeven Oil Price Falls

Exxon believes its cash flow will cover capital expenditures and the dividend this year even if Brent oil prices average as low as $45 per barrel and its downstream and chemical businesses maintain their lowest margins in at least a decade. As part of the firm's earnings presentation on Tuesday, management laid out capital allocation priorities through 2025. Exxon's base plan this year expects Brent prices of $50 per barrel, but the firm highlighted its ability to flex its spending on short-cycle shale projects if market conditions change. Management believes this will enable dividend coverage and maintenance of balance sheet strength at Brent prices of $45 per barrel (versus $58 today) while allowing the firm to continue working on its largest and [...]

February 3rd, 2021|

Chevron’s Breakeven Oil Price Now in the $40s, Providing More Support for the Dividend

Chevron on Friday reported fourth-quarter earnings and showed continued progress improving the sustainability of its dividend in a low oil price environment. Driven by capital spending reductions and lower operating expenses, Chevron's breakeven oil price required to cover its capital program and dividend was under $50 per barrel for the second quarter in a row. That's down from $55 per barrel in 2019 and the $80s not long before that.  Chevron's breakeven price is especially impressive since it includes the poor performance of its downstream and chemicals businesses, which normally account for around 20% of firm-wide profits.  These cyclical divisions barely broke even last year since they are experiencing very low margins and weak volumes compared to their historical norms. Assuming they [...]

February 1st, 2021|

Investors Await Update on PPL’s Asset Sale Plans; Dividend Could Face a Moderate Cut But We Plan to Hold

PPL last August announced plans to sell its U.K. utility operations, which generate a little over half of the firm's earnings. No deal has been announced yet, but the fate of PPL's regular dividend depends on how much of these earnings management can replace by using some of the proceeds from a potential sale to acquire a U.S. utility. For more information on PPL's divestiture plans, please see our note here. When PPL announced its plans, management expected to reach a deal in the first half of 2021. The company has not issued any updates on the sale process since August, but in November Reuters warned that a deal could be delayed due to uncertainty over whether the U.K. will leave the European [...]

January 27th, 2021|
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