Oil Screener – 02 October 2015

On Thursday, October 01, 2015, U.S. equities closed with slight corrections and increased volume as investors were circumspect before the upcoming Non-Farm payroll data due today, Friday, October 2, 2015. The Non-Farm payroll is a key input into the Federal Reserve’s equation towards interest rates’ direction.

The S&P 500 rose 0.2% at 1,923.82. The Dow Jones Industrial Average declined 12.69 points, or 0.1%, to 16,272.01. The NASDAQ Composite added 0.2%, while the Russell 2000 Index slipped 0.3%. About 7.5 billion shares traded hands on U.S. exchanges, 3.3% higher than the three-month average.

Yesterday, oil prices spiked during the trading session. However, they ended lower amid weaker U.S. manufacturing data and news hurricane Joaquin could be a threat to the U.S. East coast.WTI crude oil for November delivery was down 0.75% to $44.75 a barrel on Thursday, while Global Brent crude oil in the London ICE Exchange was down 1.4% at $47.69 per barrel. Oil has earlier rallied to rise 4% after Russian air strikes in Syria added to uncertainty in the Middle East, the biggest oil producing region. Modest improvement in Chinese economic data also helped bring up oil prices.

Both WTI crude oil and Global Brent crude oil benchmarks ended their worst quarters so far in 2015 and have shown losses in four of their last five quarters. U.S. oil lost $14.38 a barrel, or 24%, and Brent lost $15.22 a barrel, or 24%.

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The U.S. Energy Information Administration reported that crude stocks grew 4 million barrels last week, compared with analysts’ expectations for just a 300,000-barrel. U.S. production also continued its gradual decline, though the change was small, down 0.4% from last week, at 9.1 million barrels a day.

Global oil demand rose by 2.3 million barrels in the first six months of 2015, following the sharp drop in prices. While U.S. output has started to fall in recent months, worries about global production growth have kept prices locked in a narrow range. Estimates still put oversupply at around one million barrels a day, with oil exports from OPEC countries and Russia, in particular, remaining high.

Economic slowdown in key markets, such as China, is adding uncertainty to the market. Also contributing to market bearish sentiment is a potential surge in exports from Iran after international sanctions are lifted later this year or early next year, Analyst’ predicted that the supply glut will not lift until the second half of 2016 at the very earliest.

The next few months promise to usher in more troubles for the oil sector. Banks are preparing to review the amount of money they are lending to oil companies amid the lingering slump. The Federal Reserve is considering increasing interest rates before the end of 2015, which could strengthen the U.S. dollar and further pummel oil prices. And U.S. refiners are preparing to shut down for seasonal maintenance, meaning that they will be soaking up less of the crude that is flooding the markets.

Domestic Producers facing the heat

U.S. crude’s sharp decline from $100 a barrel in summer 2014 to $45 in recent times has left drillers short on cash and burdened by half a trillion dollars in debt. Many companies had pumped money into high-tech drilling rigs and manpower to fuel the American oil boom, and production has surged since late in the last decade as technological advances gave producers access to oil and gas once locked in dense shale formations. However, the boom contributed to a global oversupply of crude that sent prices spiraling down.

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Every April and October, financial institutions reassess how much they would allow oil companies to borrow based on the value of the oil and gas they hold in reserve and can afford to drill on their properties. This corporate line of credit, called a borrowing base, replenishes as a borrower pays back the balance.

Lenders could cut oil companies’ credit lines by as much as $15 billion, leaving many companies without cash to weather low prices for the oil they are producing now and unable to pay for equipment and personnel to explore for more oil to sell when prices move higher.

Already this year, 66 domestic drillers have written off a record $59.8 billion in value from their oil properties, according to research firm IHS, meaning the reserves they can use to guarantee bank loans are much smaller than they were just a year ago.

Bankruptcy Looms Large

U.S. oil and gas companies’ balance sheets have suffered mounting distress from plunging oil prices, with smaller operators the hardest-hit and many inching toward or already seeing defaults on debt and liquidity downgrades.

While OPEC can continue to sell oil at prices around $40 a barrel, U.S. companies have shareholders and lenders to answer to and would not be able to maintain operations at that price forever. We are starting to see a trickle of bankruptcies in the oil industry, and with oil prices this low and higher price hedges wearing off that trickle could turn into a flood.

Several U.S. oil producers have filed for Chapter 11 bankruptcy protection this year,. In San Antonio, FWLL LLC, the San Antonio-based parent company of ‘frac’ sand provider FourWinds Logistics, filed for Chapter 11 reorganization on August 27, 2015. On September 17, Oklahoma.-based Samson Resources filed for bankruptcy.

While oil will ultimately recover this might not happen very soon. The U.S. and other countries seem keen on pumping more to keep up with the competition amidst fear of losing market share. OPEC, the oil cartel, cannot seem to come to a consensus either. It would be naive, however, to think oil is destined for a final bust. Historically, oil is all about booms and busts. But right now, the industry is heading for a big bust.

Stock Market Does not Forgive

Commodities have been a difficult place to be in for investors over the past few years. After an incredible bull run to the beginning of 2011, in which the price of oil reached $147 a barrel, natural resources have disappointed since. After the global recession, the diversification benefits of commodities, buoyed by demand from China, made the sector attractive to retail investors. At the peak in 2011, stocks were trading more than 1.75 of their earning potential; this has now come down to 1.2 times

Oil producers battered by a number of factors have not been spared by the market either. As oil crashed more than 5.0% in the last year, oil companies have fared worse, with negative sentiment dragging down financially sound oil companies as well. Future based oil ETF’s such as United States Oil Fund (NYSEArca: USO) has tumbled more than 31.12% on a YTD basis, while the United States Brent Oil Fund (NYSEArca: BNO) is off 34% since the beginning of 2015. However, those slides have not kept investors away. In fact, USO has seen year-to-date inflows of nearly $2 billion while investors have added over $64 million to BNO. In August 2015, USO hit a low of $12.37, but has since bounced back to the $14 range.

Oil prices have recovered  since plunging to a multi-year low of under $40 a barrel in August 2015, thus begging the question of whether a bottom in the market has been set — and whether this is time for investors to consider buying or building positions in energy stocks.

Oil Stock Screener

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On Thursday, shares in Patterson-UTI Energy Inc. (NASDAQ: PTEN) declined 0.61% to finish the day at $13.61 with a volume of 5.81 million. The drilling contractor’s stock performance has been closely following oil’s performance in the last year. The oilfield services company reported an average 106 drilling rigs under contract operating in the United States, with four working in Canada.  Meanwhile, in August 2014, Patterson-UTI averaged 218 North American drilling rigs — 208 in the United States and 10 in Canada. The stock has lost 58.35% since oil prices started tumbling from the $100 per barrel benchmark in August 2014. Patterson-UTI’s stock has declined 26.04% in the past 3 months and 19.92% since the beginning of the year, underperforming the S&P 500 Index which is down 5.09% for the year.

Shares of Bill Barrett Corp. (NYSE: BBG) increased 3.33% in yesterday’s session with volume of 2.80 million shares. The Colorado-based company has been trading positively, gaining 8.95% for the week, following the announcement on September 28, 2015, that its $375 million credit line has been reaffirmed by its financiers, and that the company has reached a deal to sell Utah assets for $27 million. The beleaguered oil and gas company has been battered by plunging oil prices and has lost 70.06% since the beginning of 2015 and 83.56% in the past 12 months. The stock had a volatility of 14.58% over the past one week.

Shares in California Resources Corporation (NYSE: CRC) gained 3.46% at the close of yesterday’s session with volume of 5.40 million shares. The California-based company has been facing downward pressure since its latest earning release in August 2015, when it reported a higher-than-expected loss, impacted by falling oil prices and high debt. On September 15, 2015 Moody’s downgraded California Resources to B1 from Ba2, stating that “CRC’s debt structure and relatively high cost position in the current low oil price environment has stressed its credit metrics.” Moody’s also asserted that “It will be difficult for the company to realize meaningful debt reduction from generation of positive free cash flow.” The company has declined 22.92% in the past one month and 50.91% over the past 3 month.

On Thursday, shares in Triangle Petroleum Corporation (NYSE MKT: TPLM) gained 1.41% closing the session at $1.44 with a volume of 0.88 million which is lower than the 3 average volume of 1.46 million shares. Triangle Petroleum’s stock experienced high volatility in the past few months. The company’s shares declined more than 17% after Bloomberg reported that Triangle Petroleum had ended the sales process for Caliber Midstream Partners due to low offers. After the decline, Triangle Petroleum’s shares made some gains as oil prices skyrocketed from its bottom in late August 2015, thus reversing the company’s 17.5% slide. Triangle Petroleum’s stock have since been moving in a downward trend, losing 55.42% in the past one month and 69.87% since the beginning of the year.

Shares of Comstock Resources Inc. (NYSE: CRK) declined 1.57% at the close of yesterday’s trading session, amid falling oil prices. On October 1, 2015 the company announced that it has adopted a Rights Plan to Protect Net Operating Loss Carry forwards to reduce its future tax liabilities. The oil producer which posted a high of $28.87 in July 2014, crashed below $1 on August 4, 2015 after the company posted higher-than-expected losses. Comstock Resources cited substantial decline in oil and gas prices as the main culprit for its losses. Comstock Resources’ share price has declined 31.14% in the last one month and 72.39% since the start of 2015.


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