If we could make up one bankable investment rule for oil stocks for the past three years – it would be to note precisely what oil companies are planning for and then plan on the opposite happening.
Oil companies were sure that the oil collapse of 2014 was surely temporary, waiting more than 6 months to make extreme capex cuts and idle 1000 rigs. Their slow acceptance of the oil bust assured that 2015 would be a horrible year for oil stocks.
In 2016, they came en masse to their senses, cutting capex on average nearly 70 percent and began selling assets to protect cash flow and dividends.
Those assets were sold at pennies on the dollar as oil hovered near to $30 a barrel.
2016 was nearly as bad for oil stocks as 2015 was.
Too many oil companies survived these horrible business blunders. Together, oil companies determined that 2017 was going to be THE YEAR of recovering oil prices, and again budgeted for a new blast of exploration spending that sub-$60 oil could not justify.
CEO Al Walker of Anadarko Petroleum had this to say on his recent conference call, explaining his horrible quarter:
The biggest problem our industry faces today is you guys. You don’t reward capital efficiency, you reward growth. When you guys stop rewarding growth and reward capital efficiency, guess what — and the share prices react, people will stop chasing growth for growth’s sake. As long as investors continue to invest in companies with…