What happened
Last week, a combination of rising oil prices and expectation-beating third-quarter results sent several oil stocks skyward. Those two trends continued this week. In fact, the U.S. oil benchmark, WTI, notched its highest dollar basis gain in almost a year on Monday, spiking more than $2 a barrel after a Saudi shakeup. While crude came down a bit from that high, it still ended the week up more than 2%, closing around $57 a barrel, which marked a nearly two-year high.
In addition to that, several energy companies reported expectation-crushing third-quarter results this week. Those reports, when combined with higher oil prices, proved to be a powerful combination. Three oil stocks in particular stood out after gaining more than 35% this week, according to data from S&P Global Market Intelligence.
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So what
Bristow Group (BRS) took off this week, soaring a jaw-dropping 70% after reporting quarterly results. While the helicopter-service provider posted an adjusted loss of $0.33 per share, that was much better than the consensus estimate of a $0.93 per share loss. Further, Bristow raised its full-year guidance for EBITDA from a range of $15 million-$50 million up to $55 million-$85 million due in part to improving conditions in the offshore oil and gas market it serves. Finally, the company said it would defer some capital spending and sold its training facility to improve liquidity, returns, and credit. These factors gave investors a bit more confidence that Bristow's financial results could take flight in the coming years.
Denbury Resources (DNR) popped nearly 50% this week after reporting its third-quarter results. The oil company recorded adjusted net income of $14 million, or $0.04 per share, which was $0.03 per share ahead of the consensus estimate. That expectation-beating result came despite the impact from Hurricane Harvey, which forced Denbury to hold back some production. Even with that headwind, the company noted that it finally started growing production again, with it up 1% from the second quarter. Further, Denbury indicated that it anticipates further growth over the next year even as it generates some excess cash flow by year end, which should allow it to begin paying down its credit facility.
Finally, California Resources (CRC) popped more than 35% this week after posting better-than-expected third-quarter results. While the California-focused oil company reported an adjusted loss of $52 million, or $1.22 per share, that was $0.41 per share ahead of expectations. That beat came despite a 1% sequential decline in oil production, which the company made up for by capturing higher oil prices. Analysts liked the results and the direction California Resources appears to be heading. Morgan Stanley, for example, upgraded it to overweight from equal weight, suggesting that if oil keeps recovering, California Resources could be the "largest deleveraging story in energy" potentially tripling its equity value by 2020 if crude heads into the mid-$60s. Societe Generale, meanwhile, upgraded the stock from hold after seeing the company's better-than-expected results.
Now what
These oil stocks made massive moves primarily because they'd been so severely beaten down during the oil market downturn due to worries about their ability to survive. While their third-quarter results proved that they are in better financial shape than the market feared, none have improved to the point where they can thrive in the current market environment. Because of that, investors should continue steering clear of this trio since each one is a high-risk gamble due to their fragile financial situations, which could cause them to sell off sharply if crude takes a tumble.
