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 (NYSE:BPT), QEP Resources (NYSE:QEP), Denbury Resources (NYSE:DNR), and Parker Drilling (NYSE:PKD):
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.
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.
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.