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Why Centennial Resource Development Stock Dipped at the Open on June 26

By Reuben Gregg Brewer – Jun 26, 2020 at 12:06PM

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Volatility has been the norm lately for Centennial and was on display, again, in morning trading.

What happened

Shares of U.S. onshore exploration and production company Centennial Resource Development (CDEV 8.42%) dropped sharply in early trading on Wall Street. By about 11 a.m. Wall Street time, the stock was down roughly 6%. Big moves are hardly unusual for Centennial these days, with the shares down by about 5% over the past month despite being up over 100% at one point during that relatively short span. 

So what

There was no particular news out of the oil and natural gas company, but there were two things on investors' minds today. First, and perhaps most important, West Texas Intermediate (WTI) oil prices, a key U.S. oil benchmark, started to decline as Wall Street opened for the day. Since Centennial's top and bottom lines are tied to energy prices, it fell along with oil.   

Two men in silhouette with oil rigs

Image source: Getty Images.

The other issue that may have also been a worry for investors is the bankruptcy of U.S. energy driller Sable Permian Resources, as reported by Bloomberg. The private company skipped an interest payment in April and was clearly unable to resolve the default. It adds to the expanding list of heavily indebted drillers that have succumbed to the impact of painfully low oil prices. With a financial debt-to-equity ratio of over 13 times, Centennial Resource Development falls into the heavily leveraged category. It's little wonder that investors would be worried here, too.   

Now what

The energy patch is a very volatile place today, and most investors should probably sit on the sidelines or, at the very least, avoid the riskier names in the space. If you own or are considering investing in Centennial, you should expect often swift and dramatic price swings to continue. And all it will take is a little bit of news to precipitate such moves. This is not a stock for the faint of heart.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Centennial Resource Development, Inc. Stock Quote
Centennial Resource Development, Inc.
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