What: Shares of Unit Corporation (NYSE:UNT) dropped 22% by 11:45 a.m. ET on Thursday. Fueling the selling frenzy were the company's fourth-quarter results and a rather dour outlook for 2016.
So what: For the fourth quarter, Unit Corporation reported an adjusted loss of $6.6 million due primarily to low commodity prices. These weaker prices not only affected its oil and gas segment, which experienced a 48% decline in the average realized price per barrel equivalent, but its contract drilling and midstream segments were also negatively affected by the weak operating environment. Its contract drilling segment was hit by a one-two punch, with the average number of drilling rigs used in the quarter plunging 66% over the year-ago quarter, while the average per-day drilling rig rate slumped 9% year over year. Meanwhile, operating profit within its midstream segment slumped 10% from last quarter due to weaker gas processing volumes and fewer liquids gallons sold. The company was able to somewhat mute weaker prices by growing its production volumes by 9% year over year while also reducing its costs.
Looking ahead to 2016, Unit Corporation sees the currently tough operating conditions persisting. Because of that, the company is slashing its capital budget by 59% to 65% over what it spent in 2015. With spending being cut so steeply, Unit Corporation expects that its oil and gas production will decline by 13% to 16% over last year, basically nullifying the progress it made in 2015. In fact, it anticipates ceasing all drilling by the end of the first quarter, and will wait until the second half of the year to evaluate how to spend what remains in its capex budget.
Unit Corporation is joining a growing list of oil companies that are basically suspending activities in 2016. Whiting Petroleum (NYSE:WLL), for example, is spending the first half of the year completing projects started in 2015 before winding down its completion operations. In fact, it only plans to spend $80 million in the second half of this year, after spending $420 million in the first half. Like Unit, Whiting Petroleum is waiting for better oil prices before it resumes oil and gas activities.
Now what: In a sign of just how tough things have gotten for oil companies, Unit Corporation is pausing its oil and gas drilling activities early this year. It hopes that, by waiting, it will earn a better return on wells drilled later this year, after prices have improved. That said, investors see it as a harbinger of weakness, suggesting that the company simply doesn't have low-cost assets to invest in right now, which is why they're unloading the stock.