What happened

Shares of oil producer Centennial Resource Development (NASDAQ:CDEV) fell a disastrous 31% in the first half of 2019, according to data provided by S&P Global Market Intelligence. For reference, the broader market, as measured by the S&P 500 Index, rose 17%. In short, it was a pretty awful first half for this relatively small driller.

So what

Centennial's stock was hit by a couple of headwinds. First and foremost, oil prices have been volatile. That's not good news for a company that drills for the fuel and basically pushed the company into a defensive position. Which is the second headwind: After increasing average daily oil production by an incredible 80% in 2018, the company announced it was pulling back in 2019. That news hit the market in late February, leading to a big one-day stock decline

A man writing in a notepad with an oil well behind him

Image source: Getty Images.

The stock has generally trended lower since management laid out its 2019 goals. The plans for the year include curtailing capital spending by 15%, reducing the drilling program from seven rigs to six, and increasing oil production by around 12%. That last figure is obviously much lower than what Centennial achieved in 2018. And while first-quarter results were pretty strong, given the market environment, management highlighted that it was on track to meet its full-year goals and was focusing on maintaining its financial strength. In other words, no change in direction on its drilling plans despite the fact that oil prices appeared to be solidifying. An asset impairment charge, meanwhile, pushed the company's earnings into the red. 

The interesting thing here is that, operationally, Centennial looks like it is executing fairly well. Production continues to grow, costs are coming in below projections, and long-term debt was a modest 21% of the capital structure at the end of the first quarter. As far as oil companies go, Centennial appears pretty well positioned to deal with the market headwinds it's trying to adjust to. The biggest change seems to be investor sentiment toward the sector and this stock in particular. 

Now what

As a small oil driller, Centennial will see its shares wax and wane with oil prices and investors' views of the future. Right now, despite continuing to grow its production, investors are downbeat. And until that changes, the stock is likely to languish. Even when sentiment improves, though, only more-aggressive investors should be looking at the stock. The swift decline in 2019 driven largely by plans to slow growth was just a follow-through on a roughly 50% decline in 2018 -- a drop that basically tracked along with a steep decline in the price of oil. This stock is not for the faint of heart.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.