Is it over yet? 2015 will certainly go down as the worst year for energy stocks since 2008 – that is unless 2016 beats it for misery. Looking at certain sub-sectors, like off-shore drilling, 2016 could unbelievably make 2015 look tame.
We always knew that the bust cycle in oil prices was going to bring a lot of bad times for energy stocks – but no one imagined such carnage, even among the strongest names. I have been focusing on what I have called 'the survivors' and trying to find value in the shares of names like EOG Resources (EOG), Cimarex (XEC) and Hess (HES). With off-shore drillers, I've imagined even more awful times ahead, but took a speculative shot with Seadrill (SDRL), looking down the road two years at the inevitable rebound in deepwater drilling.
But the resilience of many of the unconventional drillers has unexpectedly extended the timeline in this oil bust cycle, catching me by surprise. We're operating inside this insane Catch-22: Oil prices can't get constructive until the U.S. and other non-OPEC producers start to trim their outputs, yet oil companies continue to use efficiency gains and top line spending cuts to stay in the game and maintain production. Oil prices stay low, and drift lower. 2016 will not be happy, at least for the first several quarters.
It gets worse: Oil companies have pushed their debt deftly down the curve, with only a tiny number of high-yielding issues coming due and requiring refinancing this coming…