What happened

April was a tough month for oil stocks. While the price of crude oil only dropped 2%, it did fall nearly 8% from its peak in the mid-$50s in early April, closing the month below the crucial $50-a-barrel level. Driving down prices were rising oil supplies in the U.S. due to surging shale output.

That shale-inspired sell-off took most oil stocks down with it last month. However, some of the deepest drops came from weaker shale producers, which need higher oil prices to help fuel their ambitious growth plans. Leading the way down were PDC Energy (PDCE), Carrizo Oil & Gas (CRZO), Halcon Resources (HK), Chesapeake Energy (CHKA.Q), and Sanchez Energy (NYSE: SN).

Drilling rig with the setting sun.

Image source: Getty Images.

So what

Sanchez Energy experienced the deepest sell-off in the group, falling nearly 19% last month. That's mainly because the company just completed a monster acquisition, partnering with a leading private equity fund on a $2.3 billion deal to bolster its position in the Eagle Ford shale. The concern is that Sanchez Energy took on a considerable amount of leverage to consummate the transaction. While the company expects to grow into its balance sheet over the next year -- and push its leverage ratio below 3.0 times -- it needs stable oil prices in the $50s to achieve that goal. However, with crude prices sliding below that key level, it has investors growing worried that the company might have bitten off more than it could chew.

Carrizo Oil & Gas also has an elevated leverage ratio, which was 3.2 times at the end of last year. Because of that, investors worry that the company might dig itself into a deeper hole, especially if it outspends cash flow on its ambitious growth program to boost output 23% this year. As investors see it, Carrizo might need to tap the brakes on its growth plan to avoid getting itself any deeper in debt.

PDC Energy also has an aggressive growth plan for 2017. The shale driller expects to spend as much as $775 million, which should fuel a more than 40% increase in output. The problem with that plan is that PDC Energy expects to outspend cash flow by about $200 million. While the company has more than enough cash on hand to finance that outspend, the drop in oil prices due to supply worries has investors starting to question whether it should outspend in pursuit of growth.

Halcon Resources, meanwhile, is still just getting back up on its feet after emerging from bankruptcy late last year. Because of its weak financial situation before that recovery, its production has been in a state of decline. However, Halcon is hoping to reverse that drop by the second half of this year as it ramps up drilling activities. That said, with oil prices starting to change course, investors are beginning to worry that Halcon might have to abandon those growth plans, so it doesn't tack more debt on its still troubled balance sheet.

Chesapeake Energy also still has some lingering financial problems that it is trying to work through. The company started April with $9.1 billion of debt and just $249 million of cash. In the meantime, the company expects to spend up to $2.5 billion in capex, which would grow its oil output 10% by year-end. The problem with that plan is that Chesapeake will once again outspend cash flow in pursuit of growth, which is what got it into trouble in the past and could do so again if crude keeps sliding.

Now what

All five of these companies have one thing in common, which is that each is stretching to grow this year by outspending cash flow. The reason that's an issue is that falling oil prices could push cash flow lower than projections, which would exacerbate an already troubling financial situation. Because of that, last month's sell-off isn't a buying opportunity in any of these companies. Investors have much better options elsewhere, including several oil stocks that not only can deliver growth in the current environment but do so while maintaining a strong balance sheet.