Please ensure Javascript is enabled for purposes of website accessibility

Oil and Gas Stock Roundup: Look Out Below!

By Matthew DiLallo - Feb 25, 2017 at 9:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

BP Prudhoe Bay, QEP Resources, Denbury Resources, and Parker Drilling all dropped sharply this week.

What happened

While the oil market was rather calm this week, that wasn't the case for a select group of oil stocks. Weak fourth-quarter earnings reports, a dilutive stock offering, and a negative article fueled a big sell-off in some of the sector's weaker players. Leading the way, according to data from S&P Global Market Intelligence, were BP Prudhoe Bay (BPT 7.61%), QEP Resources (QEP), Denbury Resources (DNR), and Parker Drilling (PKD 0.00%):

BPT Price Chart

BPT Price data by YCharts.

So what

BP Prudhoe Bay cratered after getting blasted by a negative online article from a short-seller. The writer said that the royalty trust's annual report comes out next week and "will likely estimate that dividends will end in two years!" and that it will also "likely estimate future cash flows that would result in around $4 in total future dividends per share!" Fueling those estimates are the Trust's rising costs and the big decline in oil prices over the past two years, which have already significantly cut into the value of its future reserves. Given where oil averaged last year, those values will come down; the only question is if the annual report will paint as bleak a picture as the short-seller did.

QEP Resources, meanwhile, plunged after reporting weak fourth-quarter results. While the oil company delivered record production in 2016, output declined during the fourth quarter. As a result, QEP's net loss came in much wider than expected, with the company reporting a loss of $133 million, or $0.56 per share, which was $0.34 per share more than analysts anticipated. QEP Resources also released an ambitious capex plan that calls for the company to outspend cash flow to grow output, which is a risky strategy given how fragile the oil market is right now.

Oil pumping unit at sunset

Image source: Getty Images.

Denbury Resources also slumped this week after reporting fourth-quarter results. That said, the company's net loss of $0.02 per share actually beat the consensus estimate by $0.01 per share. Furthermore, the company sounded optimistic about the future, with CEO Phil Rykhoek saying that he is excited about Denbury's "plans for returning to growth as oil prices improve." That said, Denbury Resources' official guidance for this year is to keep production roughly flat with last year, despite spending 44% more capital. Investors clearly wanted more than just words.

Finally, Parker Drilling plunged after launching common and convertible preferred stock offerings. The drilling services company raised about $75 million that it intends to use for general corporate purposes such as capital expenditures, acquisitions, or debt repayment. However, investors didn't like the offering because it wasn't very timely since the stock had already come well off its recent high and the company didn't need the cash, not to mention the fact that the offering was highly dilutive when factoring in the convertible shares. Either Parker Drilling has a plan for the money that it's not ready to release, or it is paying a steep price for some added liquidity.

Now what

These stocks all have the same thing in common: They're still struggling with the after-effects of the oil market downturn. BP Prudhoe Bay needs much higher oil prices to maintain its dividend, both Denbury and QEP Resources can't grow that much within cash flow at current prices, and Parker Drilling is paying a high price for capital. It's a reminder that while the oil market is improving, some companies need oil to go even higher before they'll be in a position to thrive.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

BP Prudhoe Bay Royalty Trust Stock Quote
BP Prudhoe Bay Royalty Trust
$20.51 (7.61%) $1.45
Denbury Resources Inc. Stock Quote
Denbury Resources Inc.
QEP Resources, Inc. Stock Quote
QEP Resources, Inc.
Parker Drilling Company Stock Quote
Parker Drilling Company
$7.00 (0.00%) $0.00

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.