We asked our energy contributors to reflect back on what they saw in the sector's third-quarter earnings. Each was asked what company disappointed him or her the most. Here's what they said.
No diamond in the rough
Tyler: Despite the surging demand for offshore rigs, Diamond Offshore (NYSE:DO) continues to struggle. In comparison to the other players in the space, Diamond has much less ambitious plans to expand its fleet. This is not encouraging for the long run, especially when you consider that the largest oil companies plan to spend over $800 billion between now and 2017 on offshore drilling and exploration.
To add insult to injury, Diamond also ran into a couple hiccups because two of its clients—Niko Resources and OGX—defaulted on their payments to Diamond for four of its ultra deepwater drilling vessels. This means that not only did the company lose out on revenue this quarter, but it also needs to find new contracts for these rigs on short notice. This probably means that the company's woes will continue into the next couple of quarters.
One big mess
Matt: I was really disappointed to see Nuverra Environmental Solutions' (NASDAQOTH:NESC) ugly third-quarter. Unlike BreitBurn, it wasn't able to get out of the hole it dug itself earlier in the year, instead Nuverra has seemed to continue digging. The worst part of the quarter was the fact that it wrote down and is now intending to sell a business it bought just last year. That botched move cost its investors more than a hundred million dollars.
It's been frustrating to watch Nuverra sink this year because the opportunity ahead of it is so compelling. While it does have a few interesting developments on the horizon, I'm not holding my breath that management can deliver. In fact, I'm not sure if I'll continue to hold my shares if Nuverra continues to disappoint.
Aimee: Management expects performance to improve at Enbridge Energy Partners (NYSE:EEP), but that might simply be because things can't get any worse. Third quarter net income was almost a quarter what it was last year, as a variety of factors weighed on the bottom line, including lower natural gas liquids prices.
The partnership is attempting to alleviate this issue by spinning off its natural gas and NGL business into the newly formed Midcoast Energy Partners, and pursuing growth through massive petroleum transportation projects. Given its pipeline leak history and the increasingly contentious climate for U.S. pipeline projects, there are no guarantees here. In the meantime, an awful lot of cash has been shown the door and the partnership does not bother covering its distributions. While investors may see promise in the long-term narrative, the short-term reality may get in the way of management realizing its dream.
Oil and gas production is booming, but not all companies are profiting from it. These three have done nothing but disappoint. Worse yet, none appear to be on the pathway to profits, so investors might want to invest their energy dollars elsewhere.