What happened?
Shares of offshore drilling specialist Transocean (RIG 2.07%), midstream operator Targa Resources (TRGP 0.79%), and oil and gas producer Ovintiv (OVV 0.64%) spent a large part of trading on May 12 up more than 10%. Transocean shares finished trading up 13.5%, while Targa and Ovintiv shares closed up around 8%.
So what
Today's big move up for all three of these companies comes with a dearth of material news. The last big news for any of the three came last week, when Targa Resources reported on May 7, reporting solid results and a big increase in adjusted EBITDA, helping reassure investors after having gutted its dividend earlier this year. Ovintiv also reported earnings on May 7, with the company saying it was slashing capital spending by 60% to help deal with the collapse in oil prices and demand. Transocean reported on April 30, with its first-quarter results leaving little to be desired as offshore drilling demand collapses.
Image source: Getty Images.
But today? Not really much to report. The closest thing to news out there was a large number of SEC Form-4 filings for Transocean, disclosing insider transactions in the companies shares. On the surface today's passel of insider action looks positive -- about a dozen Form-4 filings disclosed new investments into Transocean shares by essentially every board member and several executives. However, these were executive compensation awards, not the individuals putting up their own money to buy shares.
Beyond that, there's not really anything to report. U.S. West Texas crude futures were up 6.8% today, but it was a mixed day for many other oil price benchmarks; besides, those numbers don't really directly relate to the results for any of these three companies.
Now what
Today was one of those days of unexplainable volatility that have become far more common in the oil market this year. So let's quickly talk about the fundamentals.
For Transocean in particular, things are looking very, very bad. The offshore drilling market is in shambles and deteriorating quickly. One of its biggest competitors just declared bankruptcy, another looks very close, and even this company could be forced to go that route.
Ovintiv, formerly Encana, is in a little better shape. The company, which produces oil, natural gas, and natural gas liquids, is a little more protected from the collapse in oil prices than many other producers, with a substantial amount of its oil production hedged at nearly double the current price for West Texas Intermediate crude. However, as the oil downturn stretches further into the year, the company could face some hard decisions, even with its natural gas production helping offset the weakness in oil to some degree.
Of the three Targa Resources is in arguably the best position. The company has already made some of the hard decisions, slashing its dividend, and reducing planned capital expenditures by almost half. That should help take some pressure off the balance sheet, as the company rides out the oil downturn, setting the stage for a faster recovery of its cash flows as oil demand starts to recover.
To be blunt, I don't think now is a good time to invest in any of these three, particularly Transocean with its risk of bankruptcy. The oil market is going to remain a mess for the rest of the year, and the recovery will be slow and weigh on all three companies. Before buying any oil stocks, there are better opportunities in other segments of the energy industry you can buy right now.
