Will there be any cash outgo due to the dividend?
Due to decade low energy prices, in 1Q16, Southwestern Energy (SWN) decided to pay the dividend on its 6.3% Series B mandatory convertible preferred stock in shares of the company’s common stock. It will be done to the extent permitted by the certificate of designations for the Series B preferred stock. Common shares issued will be listed and tradable on the NYSE. The move will result in cash savings of $27 million for Southwestern Energy in 4Q16. In 2015, Southwestern Energy returned close to $106 million to its preferred stockholders through dividends.
Now, let’s discuss a recap of Southwestern Energy’s 3Q16 operating revenues, operating cash flows, and free cash flow situation.
For 3Q16, Southwestern Energy’s total operating revenue was $651 million or ~13% lower compared to 3Q15. The lower year-over-year operating revenue in 3Q16 was the direct result of lower natural gas (UNG) production and lower realized prices for natural gas production.
Operating cash flow
In 3Q16, Southwestern Energy reported an OCF (operating cash flow) of $172 million. It was ~40% lower than its OCF of $287 million in 3Q15. The fall was primarily due to lower revenues reported in the same period.
Free cash flow
FCF (free cash flow) helps a company enhance shareholder value. It can be used to pay dividends, buy back stock, or repay debt. FCF is calculated by subtracting capital expenditure or capex from OCF. In 3Q16, Southwestern Energy reported a positive FCF of $22 million.
Other oil and gas producers
Due to the steep downward trend in crude oil (USO) and natural gas (UNG) prices, free cash flows of almost all the S&P 500 (SPY) energy companies fell in 3Q16. Bigger players like Pioneer Natural Resources (PXD), Occidental Petroleum (OXY), ConocoPhillips (COP), and Range Resources (RRC) reported -$7 million, $4 million, $364 million, and -$71.8 million, respectively, in free cash flows in 3Q16. Movements in natural gas prices also impact the VelocityShares 3X Long Natural Gas ETN (UGAZ) and the VelocityShares 3x Inverse Natural Gas ETN (DGAZ).