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Why These 3 Oil Stocks Fell More Than 14% in October

By John Bromels - Nov 13, 2019 at 11:14AM

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Oil prices and a surprise announcement from an environmental group sent shares downward.

What happened

Shares of oil and gas companies Noble Energy ( NBL ), ProPetro ( PUMP 5.35% ), and Apache Corporation ( APA 4.85% ) fell 14.3%, 14.7%, and 15.4%, respectively, in October, according to data from S&P Global Market Intelligence.

Oil and gas stocks underperformed in general last month: The SPDR Oil and Gas Exploration & Production ETF dropped 5.6%. But these three stocks even lagged most of their peers in the energy sector.

An onshore oil rig with workers in silhouette

Oil prices were a big reason for these stocks' underperformance, but not the only reason. Image source: Getty Images.

There wasn't a major piece of news that affected drillers Noble or Apache directly, but instead, the companies were indirectly hit by a few items: falling oil prices in general, a big industry sell-off at the top of the month, and an environmental group's announcement. These also impacted oil-field services company ProPetro, which had some additional challenges of its own.

So what

It hasn't been a good couple of months for oil and gas producers. Oil prices spiked briefly in mid-September, but slid by double-digit percentages throughout the rest of the month. Many oil and gas stocks -- including Noble, Apache, and ProPetro -- slumped in response. Although oil prices stabilized in October, many companies -- again, including these three -- started the month with their shares on a downward trajectory. 

On Oct. 1, there was a surprisingly large sell-off of oil stocks, especially offshore rig and oil-field services stocks. That explains why ProPetro's shares dropped 6.1% that day. But although Noble and Apache have some offshore operations, they seem to have gotten caught up in whatever was causing the sell-off, with Noble shares giving up 4.7% and Apache shares falling 5.2%. This appears to have just been one of those unusual blips that occur from time to time in the world of energy investing, but in the case of these three companies, their stocks didn't have time to recover before an announcement the next day from the Environmental Defense Fund. 

The EDF announced that it believed that methane emissions from oil and gas fracking operations were about 60% higher than the Environmental Protection Agency was estimating. In a press release, it lamented that "comprehensive data on methane emissions" in the Permian Basin "is still lacking." It then said it was "

Shares of several oil and gas companies with operations in the Permian -- including Noble and Apache -- sank on the news, as investors worried that this monitoring would lead to regulations on Permian methane emissions that would increase costs for Permian producers. Because ProPetro, based in Midland, Texas, is a major Permian fracking services provider, its shares were affected as well.

With no other major news coming out during the month for either company, Noble's and Apache's shares stayed at their beaten-down level. ProPetro, on the other hand, saw a 19.5% jump on Oct. 10 after it announced positive results of an internal financial review, stating that it hadn't found any balance sheet items that would need to be restated. That bounce was short-lived, though: Shares fell right back down again after short-seller Culper Research published a critical report about the internal review. These two events essentially canceled each other out.

Now what

The volatility we've seen in oil and gas prices recently has made owning shares of oil and gas producers like Apache and Noble a bit of a roller-coaster ride. Unfortunately, there's no telling where crude prices -- which are now sitting at approximately the midpoint of their three-year range -- will go in the coming months and years. 

Noble's share price and price-to-earnings ratio are now sitting close to 10-year lows, so if you're bullish on the oil and gas industry and looking for bargains, you might want to take a closer look at the company. However, its return on capital employed -- a measure of management's effectiveness -- is lagging its peers, which should concern investors. Similarly, once-promising Apache's share price is at a 15-year low, but it also has a lagging return on capital employed. Questions surrounding the value of the companies' Permian holdings in the face of an oversupply in the region may conspire to keep their stocks depressed for the foreseeable future.

ProPetro, on the other hand, has been plagued by questions about its finances, with Reuters reporting that the company is being investigated by the SEC. Until these serious concerns are alleviated, investors would be better off steering clear. 

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.

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Stocks Mentioned

Noble Energy, Inc. Stock Quote
Noble Energy, Inc.
Apache Corporation Stock Quote
Apache Corporation
$27.02 (4.85%) $1.25
ProPetro Holding Corp. Stock Quote
ProPetro Holding Corp.
$8.66 (5.35%) $0.44

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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