Email
PrintThe shocking destruction of the stocks of the American independent oil companies this week must go down as one of the oddest instant bear markets I have come across in ages.
It's shocking because the typical genesis of it -- the price of crude -- wasn't the precipitating factor. Not at all. Crude's had a pretty good week, even with no OPEC news, nothing out of Venezuela that should tighten it and certainly nothing positive about inventories.
Nor did it really matter how the oil companies did. Some increased production and their stocks got hammered. Some cut back capex and their stocks were sliced. Some bulked up production and their stocks were obliterated.
It frankly didn't matter. The companies' stocks have become exasperating to the point that people just don't want to be in them any longer.
This was the week that the stocks of the independents -- as opposed to Chevron (CVX) or BP (BP) -- morphed into coal.
Until this week, the possibility of a "special situation" oil, one with a big find -- Apache (APA) -- or one with some aggressive goals that are being exceeded -- EOG Resources (EOG) -- could really separate from the group.
Not anymore.
All tainted with the same brush.
I found myself thinking you could short these things simply by throwing darts at them. Wherever a dart lands next is an even better short than the last toss.
Now, some of it did feel like liquidation. We know a big oil fund closed its doors yesterday. Some of it felt like an ETF gone awry.
But most of it just felt like the end of an era when Wall Street fed the oil patch, when the money to exceed your cash flow to keep drilling no longer existed. The period when you could go do an equity offering to buy more Permian and then see your stock go higher after? FINISHED.
That was something we knew when Carrizo (CRZO) saw it stock crushed when it went to buy properties with an equity raise. But anyone who thought it was just Carrizo learned yesterday it's everybody, just like Paal Kibsgaard, the CEO of Schlumberger SLB, said would happen on his most recent quarterly conference call.
In fact, any company that did an equity offering in the past -- think Pioneer (PXD) , which did a couple of them -- has seen its stock pounded well in excess of the others.
Yes, Pioneer's earnings weren't strong. There were issues. But until this week, we were willing to overlook operational issues knowing that the assets underneath were so valuable.
That's no longer the case. Without any merger activity, it really doesn't matter how good your assets really are.
Oh, and one more thing. It does appear that even the quality of the assets is in question. In an amazing shift of less than a month, the Permian, thought to be so profitable at these levels, is now being valued as an intensely wasting asset.
The idea that good money can be made at these levels has been abandoned.
So, without mergers, without dividend protection to speak of, without large-scale profitability at these prices, without a much higher crude price, all of these stocks feel like seals during Shark Week.
And somehow, we all know, it's not over.
We who own some just have to hope it's not the beginning.
