Shares of Chart Industries (NASDAQ:GTLS) are down 25.3% at 1:28 p.m. EDT on March 9 in the midst of one of the worst days for both stocks and energy in years. Both the Dow Jones Industrials and S&P 500 are down around 6% at this writing, while oil prices have plummeted 20% and are now within shouting distance of the lows from 2016, when both Brent and West Texas crude fell below $20 per barrel.
At recent prices, Brent futures had fallen to $36.11 per barrel, while West Texas intermediate was just above $33 per barrel. Since peaking in early January, oil prices have fallen by an astonishing half in barely two months' time. Today's massive oil sell-off is the result of the breakdown in negotiations between OPEC and Russia to cut their combined output by 1.5 million barrels per day. Last week, Russia balked at cutting its output, and over the weekend, Saudi Arabia took off the gloves and slashed prices.
In short, Saudi Arabia has turned on a dime from working to stabilize the market to going scorched earth to drive higher-priced oil production out of business.
You might be wondering why this has anything to do with Chart Industries, which makes cryogenic gas processing and storage equipment, not equipment for the oil industry. And the short answer is, Chart counts on oil companies as some of its largest customers for their natural gas operations. Over the past few years, the value of America's vast natural gas resources has become a focus for energy companies that are looking to take advantage of demand for this resource around the world.
As a key supplier of equipment to turn natural gas into LNG and store it, Chart's prospects have been heavily tied to the growth in LNG export/import facilities, which require massive investments in the equipment Chart makes to operate. Tying that back to oil prices, the fear is that today's massive sell-off in oil prices has big implications across the oil and gas industry. Chart might not rely on oil directly for its revenues, but its biggest customers most certainly do. And that means many of the big LNG projects it has expected would close in the next year could get pushed down the road or even unravel completely.
Chart's stock price is down by nearly half in less than a month, and the ongoing sell-off has erased almost three years' worth of gains. And the drop isn't without reason; the fundamentals of the oil and gas industry have fallen apart almost overnight due to Saudi Arabia's power play. Indirectly, Chart is likely to pay some price as the industry reevaluates capital spending and lenders tighten their purse strings. As a result, there will almost certainly be a reduction in the amount of investment in the big LNG facilities investors have been looking for as profit drivers for Chart in the short term.
But with that said, I think the long-term thesis is actually still intact. Despite the massive plunge in oil prices that's altered the landscape of the entire energy sector, the viability and importance of LNG to meet the world's energy needs remain unchanged. What has almost certainly changed is how quickly those investments to build the infrastructure will happen.
Chart's sell-off very well could prove to be an excellent opportunity to buy, but it's probably worth letting the dust settle a little more to learn how it will be impacted. The core business results should remain solid, and its balance sheet is strong, but having a better idea of how its prospects for big LNG projects have changed is important.