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Michael McDonald

Michael McDonald

Michael is an assistant professor of finance and a frequent consultant to companies regarding capital structure decisions and investments. He holds a PhD in finance…

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Low Oil Prices: Assessing The Damage So Far In 2015

Low Oil Prices: Assessing The Damage So Far In 2015

It has been a rough ride for energy stocks this year as almost all investors in the sector know. There are always extreme winners and losers among the thousands of publicly traded companies in the stock market, but broadly speaking stocks as a whole generally rise over time. This year has been an exception for energy stocks though.

Not only has energy as a group generally fallen, but the vast majority of individual energy stocks themselves have also collapsed in value. In fact, since the start of 2015, only 1 out of every 6 newly issued stocks or bonds in the energy space has appreciated in value. Most of the top performing energy stocks this year have still only managed to eke out modest gains on the order of 5-10 percent Year-to-date (YTD). Year to date returns are always a little odd though, since it’s hard to compare them to the typical mean annualized return of around 10 percent that has held for the broader market over the last 50 years. Because of that, it’s actually more useful to look at returns over the last year. Related: Saudis Could Face An Open Revolt At Next OPEC Meeting

The list of the top performing U.S. energy companies with a market cap of at least $300 million is below.

2015WLChart1

* ALDW would also make the list, but is excluded here due to relationship with ALJ.

The notable point here is how low the returns are to make the Top 10 performers list. Most of the firms on the list are actually energy sector intermediaries involved in processing or transporting the product rather than drilling for it or servicing firms that do drill. Also, notably absent on the list are most of the well-known high growth names in the energy sector. That includes all the major frackers from Pioneer to Continental. Related: As Oil Industry Cuts Back, Prices Could Spike In Years Ahead

The best performing firms over the last month show a similar trend.

2015WLChart2

Stocks like Flotek and TETRA are bouncing after substantial declines all year, largely on investors finding good news after dissecting earnings season reports. PDCE is one of the few pure-play E&P firms that has truly been holding its own for most of the year and at least tread water. The success stories of the year are in refiners like PBF, HFC, and ALJ. The point here is that a lack of stock picking ability is not what has hurt E&P investors this year – no amount of stock picking ability would have helped as virtually no E&P firms have managed to stay above the water! Related: Rosneft Doubling Down To Survive Oil Price Storm

The list of worst performing stocks emphasizes that point and reveals how deep the carnage has been for investors.

2015WLChart3

With declines of this magnitude, it is clear that the macro-environment has exposed a lot of energy companies. This makes it extraordinarily difficult for investors to find and select companies with great growth prospects.

By Michael McDonald of Oilprice.com

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  • kushal kumar on August 22 2015 said:
    The ongoing turmoil in global economy is understood to have been caused by many factors , falling oil prices in international market being one such factor. This Vedic astrology writer had , as early as last year on 2 June 2014, predicted that global economy is likely to have stressful time from November 2014 to about mid -2016. Keeping in view the varying degree of stress during the said predicted time, three divisions were highlighted as follows :
    (1). Global economy would likely to pass through a mild slowdown from November 2014 to about April 2015.
    (2). The stress may be intense during May 2015 to October 2015. It was said that : “ discernible concerns would surface. Definite rumbles of distress would be heard”.
    (3). The stress may likely be catastrophic during November 2015 to about mid- 2016.
    Briefly speaking, natural calamities , energy resources including oil and erroneous decisions of the rulers may be some of major causes.
    These predictions were made in article – Stressful times ahead for world economy in 2015 and 2016- published online at astrologyweekly.com. It may however, be observed here that astrological predictions made in advance are indicative of likely trends or environment and are not synonymous with determinism because an appropriate and sufficient strategy has a potential to either reduce the gravity of outcome or in some cases may even frustrate such impacts. That could be usefulness.

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