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David Messler

David Messler

Mr. Messler is an oilfield veteran, recently retired from a major service company. During his thirty-eight year career he worked on six-continents in field and…

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Analysts Are Wrong About This Under-The-Radar U.S. Producer

In mid-2017, California Resources, (CRC), took off like a rocket, reaching a peak of over $50 a share before the world changed in early October of 2018.

The CRC long thesis is pretty straight-forward. CRC's insulated market in California, imports almost 60 percent of its crude from overseas. It takes a lot of oil to keep ~50 million people standing still on freeways, trying to get to work or home.

Source A common scene from the 405 in LA.

With its production tied to Brent pricing, CRC should be able to sell every barrel it can produce at a nice profit. Combine that with its low decline ratio from convention reservoirs, and investors have flocked to the stock.

It has rallied nicely from its Dec 24th low, but in recent weeks has stalled out under $30, and recently the bottom has just fallen out. Now headed back to recent lows the question naturally arises…what gives with CRC?

Analyst downgrade due to debt

The market has become much less forgiving of corporate debt over the past few months, taking down the valuations of companies with too much of it. It's kind of funny in a way though, when you think about it (as I often do), the same analysts who loved CRC a year ago when it was on its impressive ramp to ~$50-ish a share, and using the same fact-set, essentially, does a 180 on the stock. Not an uncommon situation in analyst world.

Source

We should acknowledge though for a company with $1.3 bn in market capitalization,…

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