What: Shares of Pacific Drilling (PACD) have plunged 23% since the start of July as oil prices continue to put pressure on the drilling industry.
So what: Ironically, Pacific Drilling actually reported a strong second quarter last week, but that failed to inspire investors, who were focused on the drop in oil prices.
Oil has hammered all energy stocks and drilling rig contractors may be more susceptible to the downturn than most. It's becoming clear that fracking has become cost competitive at well below $60 per barrel in many places and the industry won't back down as oil prices fall. That's bad for offshore drillers who need high prices to maintain their business.
Now what: Like many competitors, Pacific Drilling is hitting 52-week lows and unless oil prices rise the pressure won't stop. The fear now is that oil prices will remain low for years to come, which once seemed unfathomable. But if they do Pacific Drilling's survival could be in question with its $3.0 billion in debt.
Offshore drilling stocks are high risk right now, but the potential reward is high as well. This isn't an investment for the faint of heart right now and unless you think oil is going to jump in the next year or two it may be time to look elsewhere for stocks.
