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Oil Producers Couldn't Ride Last Weeks Oil Rally Today (UPL, DNR, WPX, OAS, CLR)

By Tyler Crowe - Jan 25, 2016 at 4:08PM

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A trading day isn't complete anymore without a handful of oil and gas producers moving 10%. Today the culprits are Ultra Petroleum Corp., Denbury Resources Inc., WPX Energy, Inc., Oasis Petroleum Inc., and Continental Resources, Inc.

What: Remember last week when oil prices jumped 7% and sent shares of oil companies soaring in a single day? Well, the market has forgotten that day like it was ancient history. Oil is down more than 5% today, to $30.50 a barrel, and it's sending the usual suspects of oil and gas producers down again. Here's a quick rundown of companies that saw their shares decline more than 10% as of 3:00 p.m. today.

Company % Price Change
Ultra Petroleum (UPL) (19.2%)
Denbury Resources (DNR)

(19.4%)

WPX Energy (WPX)

(12.2%)

Oasis Petroleum (OAS) (14%)
Continental Resources (CLR 2.12%) (10.4%)

So what: This isn't anything new for these companies. It seems that on any given day, these companies will move 10% on no news whatsoever. A large part of that is the simple truth that these companies' shares have been hammered over the past 18 months.

WPX Chart

WPX data by YCharts.

With shares that low, Wall Street and day traders can be pretty trigger-happy with these stocks, as this kind of volatility is exactly the kind of thing they're looking for. Unfortunately for longer-term investors, these kinds of movements do nothing but toy with our emotions and make us sick to our stomachs.

The one thing that should have long-term investors jittery about these stocks is that they are all dealing with some pretty bloated balance sheets that look like a major risk with oil prices this low.

Company Total Debt to Capital Net Debt (Debt-Cash) to EBITDA
Ultra Petroleum 93.9% 4.7x
Denbury Resources 49.1% 2.7x
WPX Energy 34.7% 2.6x
Oasis Petroleum 44.9% 2.5x
Continental Resources 50.9% 2.8x

Source: S&P Capital IQ.

WPX looks to be in decent shape in this regard, but keep in mind that the company is also in the middle of an asset turnover, where it wants to shed some (or all) of its Piceance Basin assets -- a region it touted for its economics -- to load up on Permain Basin assets. Looking to sell large swaths of assets with prices this low is not going to be well received by the market, and just as a reminder, today, Iberia Capital downgraded its stock.

Oasis, Continental, and Denbuy are in the same boat because all three produce oil that requires higher oil prices to be economical: Denbury because its CO2 methods have a higher cost per barrel, and Oasis & Continental because oil from North Dakota's Bakken region trades at a discount to benchmark prices thanks to high transportation costs. While none of them look to be in the most dire of financial situations, oil prices this low will deteriorate those balance sheets quickly.

Ultra seems to be the odd one in the bunch, here, because a large majority of its production comes from natural gas, and today, the price of natural gas has been climbing on colder weather. However, with that bloated balance sheet, it's gong to take much stronger oil and gas prices to pull it back from its deep financial woes.

Now what: If you haven't made any moves on these stocks in the past couple weeks, there there is no reason to change that today. These price movements will continue to happen since there is so much uncertainty surrounding the oil and gas market at the moment -- and don't be surprised to find these companies making headlines as their stocks move another 10% sometime soon.

Tyler Crowe has no position in any stocks mentioned. You can follow him at Fool.com or on Twitter @TylerCroweFool.

The Motley Fool owns shares of Denbury Resources. The Motley Fool recommends Ultra Petroleum. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Continental Resources, Inc. Stock Quote
Continental Resources, Inc.
CLR
$67.53 (2.12%) $1.40
Ultra Petroleum Corp. Stock Quote
Ultra Petroleum Corp.
UPL
Denbury Resources Inc. Stock Quote
Denbury Resources Inc.
DNR
WPX Energy, Inc. Stock Quote
WPX Energy, Inc.
WPX
Oasis Petroleum Inc. Stock Quote
Oasis Petroleum Inc.
OAS

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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