AT&T hadn't generated free cash flow covering its dividend payout for any of the previous six years.
"The deal is predicated on a strong recovery in oil prices ($90 per barrel from 2018), while we suspect that Shell is pouncing on BG's imminent free cash flow to protect its burdensome dividend payout".
Tax issues aside, important characteristics in assessing the income trusts include the mix between crude oil and natural gas production, proven and remaining life of reserves, free cash flow, capital expenditure plans, debt service, payout ratios, performance history and netbacks (the difference between revenue and all the costs of production per barrel of oil equivalent).
"We expect that the new wireline entity will generate strong cash flow to support its likely dividend payouts," the research firm said.
The joint venture has a commitment to payout 90% of free cash flow.
The company's free cash flow last year, £288 million, exceeded its dividend payout of £201 million, so it did not have to borrow to pay it.
On Thursday a Citigroup analyst said the company's robust cash flow should be enough to maintain the payout and take care of the Gulf Coast cleanup efforts.
The cash position resulting from operations, open items management, financial management (short-term investments and short-term borrowing at fixed interest rates) and exogenous cash flows (including dividend payouts) is balanced within each period.
He led Nabors out of bankruptcy in 1987, and at the time was handed a 6 percent slice of net cash flow above a threshold and a formula-based payout in the event of being ousted from his job.
Payout is determined by free cash flow.
Exxon's free cash flow is enormous because of its stingy dividend payout of approximately 20% of earnings and perennially restrained capital spending.
