The oil market hit a rough patch in March after renewed volatility sent crude prices below $50 a barrel for the first time since November. That decline in the oil market, along with some company-specific news, sent financially challenged oil producers plunging. Among the biggest decliners were Cobalt International Energy (NYSE: CIE), California Resources (NYSE:CRC), Stone Energy (NYSE: SGY), and Resolute Energy (NYSE: REN).
Cobalt International Energy suffered the biggest decline last month, plunging nearly 25%. While weaker oil prices certainly weighed on the stock last month, an even deeper concern to investors was the company's troubling fourth-quarter results. Driving those worries was Cobalt's $0.43 per share loss, which was much deeper than the $0.15 per share analysts expected. Also concerning was the company's 2017 forecast that it would spend $550 million to $650 million against just $50 million in revenue. While the company did end the year with $956.5 million in cash, at its current burn rate, it will be out of money in less than two years. Because of that, Cobalt International Energy needs to either sell assets or raise outside capital to stay afloat, which is hard to do when oil is bouncing around $50 per barrel.
California Resources was also down more than 20% last month. Slumping crude oil also played a role in that decline, especially considering what the company said at its analyst day last month. What worried the market the most was how sub-$55 oil would affect the company's financial situation. At that price point, more than half of California Resources' EBITDA will go toward interest expenses and debt repayment this year instead of capex, limiting its ability to grow. Also concerning is that the company's leverage ratio would remain above 7.0 times at that oil price and would only decline marginally by 2020 if oil didn't improve into the mid-$70s. That suggests California Resources could remain a "zombie-like" company that's unable to grow unless it makes a significant transaction to pay down debt.
Stone Energy also slid double-digits last month, which was its first decline since returning to the public markets after emerging from bankruptcy protection. While the company was able to eliminate $1.2 billion of debt via bankruptcy, it still has a long road to recovery ahead of it given where oil prices are these days. The concern is that the new Stone Energy is 100% focused on the Gulf of Mexico and Gulf Coast, which are higher-cost sources than shale. Because of that, the company could struggle to grow if oil prices remain low.
Finally, Resolute Energy is a bit of an outlier in this group. Its March slump appeared to be just a breather considering how hot this oil stock has been over the past year. That said, investors had reason to be nervous after the company reported a deeper-than-expected fourth-quarter loss and spent $160 million on an acquisition to bolster its high-return Delaware Basin position. What has investors concerned at the moment is that Resolute Energy didn't put long-term financing in place and instead paid for the transaction with its credit facility. However, that might be a short-term concern because the company subsequently put its legacy Aneth Field assets on the market, and it could use that cash to finance the deal. That said, this stock could remain volatile until the company provides more details on that deal because the market sees its debt level rising at a time when oil prices are wobbling.
Cobalt International Energy, Stone Energy, and California Resources need oil prices to stabilize much higher before they're back on solid ground. Because of that, investors should steer clear of those oil stocks since there are plenty of better options. One of those options appears to be Resolute Energy, which has emerged from the downturn with a stronger balance sheet and a focused position in a high-return oil play. While the company is higher risk, especially while it figures out how to finance its latest deal, it has compelling upside from its high-growth Delaware Basin position, which could ultimately make it a buyout candidate.