Please ensure Javascript is enabled for purposes of website accessibility

Wall Street Fell in Love With Energy Stocks Today (SWN, SN, NBR, PDS, ESV)

By Tyler Crowe - Mar 3, 2016 at 6:45PM

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

On days like this, sometimes you want to scratch your head and wonder what Wall Street was thinking.

Image Source Weatherford international corporate website.

What: Energy stocks continued their wild, wild ride today as a slew of companies in the oil and gas industry saw strong gains. Unlike most days, when only producers feel the effects of oil and gas prices, companies across various energy subsectors felt the love. Companies across the industry include Southwestern Energy (SWN -1.01%), Sanchez Energy (NYSE: SN), Nabors Industries (NBR -3.97%), Precision Drilling (PDS -5.33%), and Ensco (VAL)

SWN Price Chart

SWN Price data by YCharts.

So What: Sometimes, it's really difficult to understand why the market works in the way that it does, because a few of the companies mentioned here probably should have seen shares head in the opposite direction. Let's start with Southwestern Energy. Most oil and gas drillers in the space moved a bit as the price of oil climbed ever so slightly, but remained rather close to $35 a barrel. Not a great price for producers, but a heck of a lot better than the sub $30 per-barrel prices we saw a month ago. The problem here is that Southwestern Energy is almost exclusively a natural gas producer, and the price of natural gas actually declined to an absurdly low $1.63 per-million BTU -- a price at which no gas producer in the country can make a reasonable return.

In the same vein, we have drilling-rig contractors Nabors Industries and Precision Drilling. The two companies lease rigs to oil and gas producers, and a major driver of their business is drilling activity and the active rig count. However, total active rigs in the U.S. is on the decline, and is about to match 1998's rig count, a level that is the lowest since we started keeping track of rig count back in the 1940s.

For Sanchez and Ensco, there wasn't any real company-specific news, but both Sanchez and Ensco's shares are down 85% and 79%, respectively, since oil prices started to decline in June of 2014. With shares down that low, it doesn't take a whole lot of positive news from the overall industry for shares to experience double-digit gains. 

Now What: If you're an investor in any of these companies, today's price jump likely put a little smile on your face; but in reality, that's probably all they are worth. Wall Street can take those gains back tomorrow just as easily as they climbed today. Until we start to see some change in drilling activity both on and offshore, Nabors, Precision Drilling, and Ensco will continue to struggle to find work for their rig fleets. As long as oil prices stay low, both Sanchez and Southwestern will struggle to maintain both production levels and their balance sheets.

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

Precision Drilling Corporation Stock Quote
Precision Drilling Corporation
$53.12 (-5.33%) $-2.99
Valaris plc Stock Quote
Valaris plc
Southwestern Energy Company Stock Quote
Southwestern Energy Company
$5.86 (-1.01%) $0.06
Nabors Industries Ltd. Stock Quote
Nabors Industries Ltd.
$110.35 (-3.97%) $-4.56

*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 07/07/2022.

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.