Please ensure Javascript is enabled for purposes of website accessibility

Oil Slumps 6% Sending Oil Stocks Down With It

By Matthew DiLallo – Feb 1, 2016 at 3:20PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Ultra Petroleum, Nabors Industry, Denbury Resources, California Resources, and Whiting Petroleum all slump along with oil.

What: After surging 9% last week, crude reversed course on Monday, closing down 6%. This caused oil stocks to follow suit, with Ultra Petroleum (UPL), Nabors Industry (NBR -13.96%), Denbury Resources (DNR), California Resources (CRC), and Whiting Petroleum (WLL) all dropping by more than 10% by 2:45 p.m. EST on Monday.

So what: Ultra Petroleum was the hardest hit today, with its stock falling by more than 15% because of the double whammy of slumping oil prices and a credit rating downgrade. That downgrade came from S&P, which lowered Ultra Petroleum's corporate credit rating by five notches to CCC- from B+. In doing so, the rating agency noted that Ultra's "leverage and liquidity continue to deteriorate in light of our recently reduced commodity price deck and our estimate that the company will breach financial covenants on both its unsecured credit facility and senior unsecured notes at the end of the first quarter."

That's also a concern with Denbury Resources, California Resources, and Whiting Petroleum, which is why all three have tried to take steps to reduce their leverage and improve their liquidity in recent months. California Resources has had some success in reducing its leverage after swapping $2.8 billion of its bonds resulting in a $563 million reduction in its outstanding principal, but it still has a ways to go. Denbury, on the other hand, tried a similar bond swap deal, but it abandoned it last month after its bondholders pushed back against its offer. Whiting, meanwhile, hasn't attempted any bond swap deals, partially because it has a lot more liquidity after its banks reaffirmed its borrowing base late last year.

Nabors is in a slightly different boat and is moving lower today because falling crude prices mean continued weakness in oil-field service activities. That was evident last week after the U.S. rig count fell by another 18 rigs, marking the six straight week the rig count has declined. The rig count will likely head even lower, with it estimated that the rig count could decline by another 30% this year after falling 46% over the past year, likely leading to less work for Nabors this year.

Now what: The market continues to be very concerned about the leverage and liquidity of smaller independent oil companies, with those worries heightened whenever oil takes a big dive. This volatility won't go away until these companies either find a more permanent solution to their issues, or the price of oil rises significantly.

Matt DiLallo owns shares of Denbury Resources. 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Whiting Petroleum Corporation Stock Quote
Whiting Petroleum Corporation
Ultra Petroleum Corp. Stock Quote
Ultra Petroleum Corp.
Denbury Resources Inc. Stock Quote
Denbury Resources Inc.
Nabors Industries Ltd. Stock Quote
Nabors Industries Ltd.
$94.40 (-13.96%) $-15.31
California Resources Corporation Stock Quote
California Resources Corporation

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.