Summary
The author’s Bottom of the Barrel Club identified companies the market appears to treat as the weakest in the E&P sector;
The author identifies another group, the ‘Sweet Crude Club’ as those companies the market appears to favor as the strongest in the E&P sector.
Balance sheet data and various enterprise information, including EBITDA, full cost equivalency, short interest figures are presented and analyzed.
I set up a group of companies I call the ‘Bottom of the Barrel Club‘ about a month ago as a way of capturing glances at the companies that the market, for one reason or another, appeared to be punishing the most severely. At the same time I also set up for tracking purposes a separate group, which I now refer to as the ‘Sweet Crude Club,’ to capture data on the companies that the market “favored.”
Just in the intervening period, of course, many E&P companies have experienced sharp declines, bringing into question whether there are very many companies that the market does favor. Nevertheless, in going back through performance and financial data, I did confirm, at least to myself, that there are still characteristics that distinguish members of the Sweet Crude Club from those that have fallen to the Bottom of the Barrel.
Why the Sweet Crude Club? Well, oil quality is divided based on its sulfur content; oil with sulfur content less than 0.5% are classified as “sweet” and oil with higher sulfur content labeled “sour.” Sweet crude requires less processing as a general rule, and as a result receives prices that are at a premium to sour grades. Much like how the stock market determines companies it thinks are better than others.
As a rough outline of the kinds of companies included, E&P companies in the Sweet Crude Club have many of the following traits:
- Stock prices greater than $5/share;
- Market capitalizations of greater than $500 million;
- Debt/equity ratios in the lower half of E&P companies;
- Investment grade credit ratings, unsecured bank credit lines and unsecured securities that do not trade at levels considered “distressed” (generally 11% or greater); and
- A lack of financial restructuring activity, particularly debt swaps.
Companies that I have included in the Club include Anadarko (NYSE:APC), Antero (NYSE:AR), Apache (NYSE:APA), Cabot (NYSE:COG), Callon (NYSE:CPE), Carrizo (NASDAQ:CRZO), Cimarex (NYSE:XEC), Clayton Williams (NYSE:CWEI), Concho (CXO), Continental Resources (NYSE:CLR), Devon (NYSE:DVN), Diamondback (NASDAQ:FANG), Energen (NYSE:EGN), EOG Resources (NYSE:EOG), Gulfport (NASDAQ:GPOR), Laredo (NYSE:LPI), Matador (NYSE:MTDR), Newfield (NYSE:NFX), Noble (NYSE:NBL), Oasis (NYSE:OAS), Parsley (NYSE:PE), PDC Energy (NASDAQ:PDCE), Pioneer Natural (NYSE:PXD), QEP Resources (NYSE:QEP), Range (NYSE:RRC), Rice (NYSE:RICE), Ring (NYSEMKT:REI), RSP Permian (NYSE:RSPP), SM Energy (NYSE:SM), Southwestern (NYSE:SWN), Whiting (NYSE:WLL) and WPX Energy (NYSE:WPX). Hess (NYSE:HES) and Murphy (NYSE:MUR) are likely to be added when these figures are updated after year-end releases.
Table 1: Balance Sheet and Impairment Data
Table 1 is a summary of information I have previously supplied in prior article on the impact of impairments on balance sheets, primarily to show the difference between the companies who use full cost accounting and those who use successful efforts accounting. Columns 1-4 set out the impairments taken through 3Q ’15, the most recent financials available; full cost companies dominate the list of biggest impairments to date by far. Columns 5-9 reflect Balance Sheet items, including PP&E (properties), debt and equity figures, and also net income for 3Q. Columns 11-12 show ’14 SEC and PP&E figures.
Column 13 is a key column. It is an illustration of what each company’s common equity would be if full cost accounting standards for impairments were utilized. As such, they could be viewed as an NAV estimate comparing all companies on the same (full cost) basis which, at YE ’15, will utilize trailing 12 month average prices of roughly $50/bbl. and $2.60/mcf for oil and natural gas, respectively. Of particular note is that common shareholders’ equity under this method would be $65 billion vs. $136 billion under the respective existing accounting methods; comparing Column 9 and Column 13 would yield the comparative numbers that diverged the most because of successful efforts accounting use.
1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | |||||
YE ’14 | YE ’14 | ||||||||||||||||
Impair | Impair | Impair | Impair | PP&E | Debt | Equity | Pfd | Common | Net Inc | SEC | Proved | YE ’15 | |||||
Company | SYMB | Acct | 1Q ’15 | 2Q ’15 | 3Q ’15 | YTD ’15 | 3Q | 3Q | 3Q | 3Q | Eq. 3Q | 3Q | $95/4.35 | PP&E | FCE | ||
Anadarko | APC | SE | (2,783) | (30) | (758) | (3,571) | 35,381 | 15,892 | 17,052 | 2,973 | 14,079 | (2,200) | 30,660 | 32,600 | 1,350 | ||
Antero | AR | SE | (9) | (2) | (5) | (16) | 9,352 | 4,363 | 5,474 | 1,090 | 4,384 | 204 | 7,635 | 5,713 | 1,544 | ||
Apache | APA | FC | (7,220) | (5,816) | (5,721) | (18,757) | 22,357 | 8,777 | 11,972 | 2,163 | 9,809 | 1 | 31,658 | 36,851 | 10,141 | ||
Cabot | COG | SE | 0 | 0 | 0 | 0 | 5,141 | 2,017 | 2,122 | 0 | 2,122 | (16) | 6,493 | 4,918 | (337) | ||
Callon | CPE | FC | 0 | 0 | (87) | (87) | 776 | 399 | 367 | 0 | 367 | 21 | 580 | 600 | 154 | ||
Carrizo | CRZO | FC | 0 | 0 | (813) | (813) | 2,071 | 1,412 | 578 | 0 | 578 | 0 | 2,555 | 2,094 | 344 | ||
Cimarex | XEC | FC | (604) | (967) | (1,181) | (2,752) | 4,194 | 1,500 | 3,434 | 0 | 3,434 | 0 | 4,353 | 6,144 | 3,114 | ||
Clayton Williams | CWEI | SE | 0 | (3) | (4) | (7) | 1,284 | 750 | 347 | 0 | 347 | (9) | 933 | 1,154 | (223) | ||
Concho | CXO | SE | 0 | (12) | (8) | (20) | 11,162 | 3,822 | 6,134 | 0 | 6,134 | 180 | 8,023 | 9,004 | 1,652 | ||
Continental | CLR | SE | (148) | (77) | (97) | (322) | 14,174 | 7,109 | 4,799 | 0 | 4,799 | (34) | 18,433 | 12,444 | (1,101) | ||
Devon | DVN | FC | (5,460) | (4,168) | (5,851) | (15,479) | 22,775 | 11,400 | 15,922 | 4,374 | 11,548 | 230 | 20,474 | 26,178 | 13,938 | ||
Diamondback | FANG | FC | 0 | (323) | (274) | (597) | 2,758 | 489 | 2,289 | 233 | 2,056 | 36 | 2,045 | 2,345 | 1,481 | ||
Energen | EGN | SE | (7) | (71) | (399) | (477) | 5,182 | 2,067 | 3,465 | 0 | 3,465 | 100 | 4,220 | 5,010 | 1,437 | ||
EOG | EOG | SE | 0 | (138) | (6,307) | (6,445) | 24,275 | 6,394 | 13,284 | 0 | 13,284 | 33 | 27,923 | 24,956 | 7,251 | ||
Gulfport | GPOR | FC | 0 | 0 | (595) | (595) | 3,390 | 963 | 2,871 | 0 | 2,871 | 207 | 1,427 | 1,425 | 2,754 | ||
Laredo | LPI | FC | (1) | (490) | (907) | (1,398) | 2,119 | 1,416 | 1,089 | 0 | 1,089 | 100 | 3,247 | 2,860 | 1,057 | ||
Matador | MTDR | FC | (67) | (229) | (286) | (582) | 1,142 | 391 | 717 | 1 | 716 | 41 | 913 | 1,057 | 770 | ||
Newfield | NFX | FC | (792) | (1,521) | (1,889) | (4,202) | 4,418 | 2,498 | 2,031 | 0 | 2,031 | 0 | 6,212 | 7,555 | 2,456 | ||
Noble | NBL | SE | (27) | (15) | 0 | (42) | 21,749 | 8,033 | 12,450 | 0 | 12,450 | (283) | 14,000 | 16,292 | 4,346 | ||
Oasis | OAS | SE | (5) | (20) | 0 | (25) | 5,308 | 2,380 | 2,309 | 0 | 2,309 | 27 | 3,982 | 4,114 | 277 | ||
Parsley | PE | SE | 0 | 0 | 0 | 0 | 2,031 | 556 | 1,383 | 313 | 1,070 | 1 | 955 | 1,120 | 510 | ||
PDC | PDCE | SE | (2) | 3 | (154) | (153) | 1,873 | 550 | 1,280 | 0 | 1,280 | 60 | 2,304 | 1,596 | 635 | ||
Pioneer Natural | PXD | SE | (138) | 0 | (72) | (210) | 10,562 | 2,675 | 8,981 | 0 | 8,981 | 720 | 7,785 | 10,231 | 4,076 | ||
QEP | QEP | SE | (20) | 0 | (15) | (35) | 7,349 | 2,042 | 3,972 | 0 | 3,972 | 35 | 5,340 | 6,112 | 951 | ||
Range | RRC | SE | (11) | (24) | (514) | (549) | 7,785 | 3,587 | 3,085 | 0 | 3,085 | 50 | 7,593 | 7,034 | 117 | ||
Rice | RICE | SE | 0 | 0 | 0 | 0 | 3,101 | 1,521 | 2,018 | 451 | 1,567 | 60 | 1,308 | 1,980 | 577 | ||
Ring | REI | FC | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 196 | 153 | (77) | ||
RSP Permian | RSPP | SE | 0 | 0 | (4) | (4) | 2,625 | 699 | 1,659 | 0 | 1,659 | 9 | 876 | 1,414 | 956 | ||
SM | SM | SE | (67) | (13) | (62) | (142) | 5,451 | 2,350 | 2,187 | 0 | 2,187 | 3 | 5,699 | 4,519 | 70 | ||
Southwestern | SWN | FC | 0 | (1,535) | (2,839) | (4,374) | 9,979 | 4,663 | 4,437 | 0 | 4,437 | 0 | 7,543 | 9,066 | 4,278 | ||
Whiting | WLL | SE | 0 | (58) | (1,691) | (1,749) | 10,947 | 5,255 | 4,850 | 0 | 4,850 | 110 | 10,843 | 9,953 | 1,623 | ||
WPX | WPX | SE | 0 | 0 | 0 | 0 | 9,815 | 3,400 | 5,072 | 0 | 5,072 | (158) | 3,883 | 6,019 | 2,063 | ||
TOTALS | (17,361) | (15,509) | (30,533) | (63,403) | 270,526 | 109,370 | 147,630 | 11,598 | 136,032 | (472) | 211,796 | 224,198 | 65,286 |
There are a lot of numbers in the table, any of which may provide different perspectives for each reader. For me, the key takeaways are:
- While the total impairments reported to date are $63 billion, only 20% of those were due to successful efforts companies, whose common shareholders’ equity comprised 80% of the total equity. This is in line with my earlier statements about lax/lenient standards for successful efforts companies, not a reflection of higher quality.
- Total debt of $109 billion is 40% of PP&E, not an inordinate amount except when you consider the likely “overstatement” of PP&E that results from the successful efforts companies. Debt of $109 billion on $136 billion of equity is a ratio of 80%, higher than usual standards.
- Column 13, the full cost equivalency measure, is striking in that common equity shrinks to $65 billion from $136 billion, a difference of $71 billion. Since full cost companies have already reported impairments, that amount is solely what successful efforts companies would report on a full cost basis. Companies with the biggest spread between their reported equity and their estimated full cost equivalency include Anadarko, Concho, Continental, EOG, Newfield, Noble, Pioneer, QEP, Range and Whiting. Of course, actual updated numbers will be provided for all companies shortly.
Table 2: Stock Performance and Enterprise Data
Table 2 below reflects stock market performance for each Club member for ’15 and from 6/30/14, the peak in E&P stocks. Columns 17-20 reflect equity market valuations and enterprise statistics, including debt as a % of total enterprise values, which make it easy to pick out lower leveraged companies. Columns 21-23 include EBITDA ratios that are commonly used in E&P circles, with Column 23 a key reflection of enterprise value to annualized EBITDA figures. Column 24 is the free cash flow of each company, while Columns 25-27 reflect short interest figures that some readers may find of interest. All of the EBITDA figures and debt are as of 2Q but would not have varied substantially at 3Q even with offerings, etc.; since EBITDA figures are annualized they should be very much in line with even YTD numbers to be reported.
14 | 15 | 16 | 17 | 18 | 19 | 20 | 21 | 22 | 23 | 24 | 25 | 26 | 27 | |
% Price | % Price | Equity | Adjusted | Est Total | Debt | Debt/ Annzd | Annzd EBITDA | Tot Ent | Free | Shares | % of | Short | ||
Price | Change | Change | Market | Debt @ | Enterpr | %Total | EBITDA | Ex Hedge/ | Value/ Annzd | Cash Thru | Short | Shares | Interest | |
Company | 12/31/15 | 1 year | 06/30/14 | Cap 12/31/15 | 06/30/15 | Value | Ent Val | Ex Hedge | Interest | EBITDA | 06/30/15 | MM | Short | Ratio |
Anadarko | 48.58 | (41) | (56) | 24,674 | 19,028 | 43,702 | 44% | 6.9 | 2.8 | 18.8 | (834) | 14.8 | 2.9% | 1.9 |
Antero | 21.80 | (46) | (67) | 6,039 | 5,590 | 11,629 | 48% | 9.3 | 2.1 | 24.0 | (748) | 21.6 | 31.0% | 5.5 |
Apache | 44.47 | (29) | (56) | 16,770 | 11,887 | 28,657 | 41% | NA | 0.0 | NA | 3,965 | 12.1 | 3.2% | 2.6 |
Cabot | 17.69 | (40) | (48) | 7,320 | 1,995 | 9,315 | 21% | 2.5 | 8.2 | 11.8 | (230) | 20.0 | 4.9% | 2.3 |
Callon | 8.34 | 53 | (28) | 550 | 455 | 1,005 | 45% | 4.9 | 3.8 | 13.2 | (101) | 8.8 | 13.5% | 3.9 |
Carrizo | 29.58 | (29) | (57) | 1,538 | 1,373 | 2,911 | 47% | 5.3 | 3.7 | 11.3 | (218) | 6.8 | 14.1% | 3.9 |
Cimarex | 89.38 | (16) | (38) | 8,446 | 800 | 9,246 | 9% | 1.1 | 9.3 | 12.5 | (255) | 3.7 | 4.3% | 2.3 |
Clayton Williams | 29.57 | (54) | (78) | 361 | 747 | 1,108 | 67% | 5.7 | 2.4 | 8.5 | (62) | 1.2 | 19.9% | 5.4 |
Concho | 92.86 | (7) | (36) | 11,143 | 3,582 | 14,725 | 24% | 3.1 | 5.5 | 12.6 | (796) | 4.9 | 4.6% | 2.4 |
Continental | 22.98 | (40) | (71) | 8,574 | 6,988 | 15,562 | 45% | 3.3 | 6.8 | 7.4 | (1,046) | 20.8 | 24.3% | 3.0 |
Devon | 32.00 | (48) | (60) | 13,155 | 16,203 | 29,358 | 55% | 3.3 | 7.1 | 8.5 | (814) | 11.6 | 2.9% | 1.5 |
Diamondback | 66.90 | 12 | (25) | 3,947 | 952 | 4,899 | 19% | 2.4 | 7.1 | 16.4 | (480) | 3.7 | 8.1% | 3.0 |
Energen | 40.99 | (36) | (54) | 3,226 | 687 | 3,913 | 18% | 2.1 | 13.4 | 12.2 | (45) | 4.8 | 7.4% | 4.5 |
EOG | 70.79 | (23) | (39) | 38,595 | 6,394 | 44,989 | 14% | 1.7 | 16.7 | 11.8 | (1,019) | 11.0 | 2.0% | 2.3 |
Gulfport | 24.57 | (41) | (61) | 2,658 | 964 | 3,622 | 27% | NA | 0.0 | NA | (841) | 4.0 | 5.3% | 1.7 |
Laredo | 7.99 | (23) | (74) | 1,709 | 1,425 | 3,134 | 45% | 5.6 | 2.3 | 12.3 | (316) | 22.7 | 18.5% | 6.8 |
Matador | 19.77 | (2) | (32) | 1,690 | 391 | 2,081 | 19% | 2.3 | 10.6 | 12.2 | (181) | 9.1 | 12.3% | 6.9 |
Newfield | 32.56 | 20 | (26) | 5,301 | 2,450 | 7,751 | 32% | NA | 0.0 | NA | (321) | 9.1 | 5.6% | 2.6 |
Noble | 32.93 | (31) | (57) | 12,744 | 6,112 | 18,856 | 32% | 5.4 | 5.1 | 16.6 | (846) | 16.1 | 3.8% | 4.1 |
Oasis | 7.37 | (55) | (87) | 1,026 | 2,355 | 3,381 | 70% | 4.9 | 3.2 | 7.0 | (145) | 35.5 | 31.1% | 2.9 |
Parsley | 18.45 | 16 | (23) | 2,600 | 896 | 3,496 | 26% | 3.9 | 3.5 | 22.4 | (177) | 12.0 | 13.3% | 3.7 |
PDC | 53.38 | 29 | (15) | 2,135 | 553 | 2,688 | 21% | 2.9 | 4.1 | 14.1 | (212) | 8.1 | 20.7% | 7.7 |
Pioneer Natural | 125.38 | (16) | (45) | 18,719 | 2,672 | 21,391 | 12% | 2.8 | 5.2 | 22.3 | (774) | 8.1 | 6.1% | 2.9 |
QEP | 13.40 | (34) | (61) | 2,368 | 2,219 | 4,587 | 48% | 2.9 | 5.3 | 6.0 | (657) | 12.3 | 7.0% | 3.3 |
Range | 24.61 | (54) | (72) | 4,164 | 3,464 | 7,628 | 45% | 8.4 | 2.5 | 18.4 | (335) | 24.6 | 18.3% | 3.8 |
Rice | 10.90 | (48) | (64) | 1,486 | 1,873 | 3,359 | 56% | 6.4 | 2.8 | 15.1 | (508) | 14.2 | 17.6% | 3.9 |
Ring | 7.05 | (33) | (60) | 214 | 41 | 255 | 16% | 2.6 | 80.0 | 15.9 | (93) | 1.3 | 6.0% | 12.0 |
RSP Permian | 24.39 | (3) | (25) | 2,049 | 500 | 2,549 | 20% | 3.0 | 4.4 | 15.2 | (157) | 9.7 | 16.3% | 6.5 |
SM | 19.66 | (49) | (77) | 1,327 | 2,350 | 3,677 | 64% | 3.1 | 6.0 | 4.9 | (97) | 15.1 | 22.7% | 6.0 |
Southwestern | 7.11 | (74) | (84) | 2,735 | 6,264 | 8,999 | 70% | 3.5 | 6.4 | 6.9 | 110 | 94.5 | 28.2% | 4.3 |
Whiting | 9.44 | (71) | (88) | 1,927 | 5,253 | 7,180 | 73% | 4.4 | 3.6 | 6.1 | (917) | 31.7 | 15.6% | 2.4 |
WPX | 5.74 | (51) | (76) | 1,175 | 2,000 | 3,175 | 63% | 4.8 | 3.2 | 7.7 | 525 | 35.8 | 20.2% | 3.9 |
TOTALS | 210,363 | 118,463 | 328,826 | (8,626) |
Key takeaways for me from Table 2 include the following:
- Even though price declines were “severe” in ’15, 5 companies actually had positive returns for that period, and overall the declines were less severe than for the BOTB members. The same is true for the period from 2Q ’14, although Oasis, Southwestern and Whiting’s price declines were somewhat comparable to the better performing BOTB Club members.
- Although the debt to enterprise values at roughly 30% do not appear to reflect any financial distress, it is interesting to note that the market capitalization of $210 billion compares to book values of $136 billion (Col. 9), a multiple of 1.54X book. Using the full cost equivalency (Col. 13) figure of $65 billion, however, the market cap equates to 3.23X, again noting that such figures will reflect oil/natural gas prices of $50/$2.60 respectively.
- Col. 23 shows the key measure of EV/EBITDA, which in normal times might reflect multiples of 8-10X. Many of these figures are above that, with Antero, Parsley, and Pioneer having multiples in excess of 20X EBITDA excluding the impact of hedges. These companies, as well as some others, are considered by many investors to have more upside potential in their existing reserve base, while others might believe they are overvalued based on speculation.
- Free cash flow (Col. 24) is illustrative of the problem many E&P companies are facing; their CAPEX exceeds their cash flow from operations. The cumulative “excess” through 2Q was almost $13 billion if you exclude Apache, which reflects a major sale in its numbers. Of course, equity and debt offerings from some of these companies helped pay for CAPEX in ’15. CAPEX guidance for ’16 will be issued in the coming days and is expected to be at least closer to being within cash flow levels.
- Short interest figures are of interest to me, if for no other reason than “shorts” are often blamed for price declines in stocks. Each reader may have different motives in looking at these numbers (Col. 25-27). On the high side are companies like Antero, Oasis and Southwestern at more than 25% of the float sold short. On the flip side, 15 companies have short interest of less than 10%. The short interest ratio, which reflects the number of days it would take for shorts to exit their positions based on recent volume, is highest for Ring, PDC Energy, Laredo and Matador.
Table 3: Bond Data
Table 3 includes bond data for each company; in general I took the bond with the maturity closest to 1/1/20 to standardize the approach for a 5 year security. Col. 28-33 have data on the issues themselves, including symbol, CUSIP, coupon rates and maturities, as well as agency ratings. Col. 34-36 include price data for ’15 returns. Col. 37 has the yield to maturity (YTM) of such issues based on their current prices, which in most cases are lower than the prices shown at 12/31/15.
28 | 29 | 30 | 31 | 32 | 33 | 34 | 35 | 36 | 37 | ||
Stk | Bond | Price | Price | Price | Current | ||||||
Company | Symbol | Symbol | CUSIP | Coupon | Maturity | Moody’s | S&P | 12/31/2015 | 12/31/2014 | Chg 2015 | YTM |
Anadarko | APC | APC.HJ | 032511BF3 | 6.950% | 06/15/19 | Baa2 | BBB | 110.59 | 117.15 | (6) | 4.6% |
Antero | AR | AR4212107 | 03674XAC0 | 5.125% | 12/01/22 | Ba3 | BB | 76.15 | 98.75 | (23) | 9.8% |
Apache | APA | APA.GG | 037411AP0 | 7.625% | 07/01/19 | Baa1 | BBB+ | 114.93 | 117.55 | (2) | 3.4% |
Cabot | COG | ||||||||||
Callon | CPE | ||||||||||
Carrizo | CRZO | CRZO3898990 | 144577AF0 | 7.500% | 09/15/20 | B2 | B | 86.55 | 96.99 | (11) | 14.4% |
Cimarex | XEC | XEC3834827 | 171798AB7 | 5.875% | 05/01/22 | Baa3 | BBB- | 96.50 | 103.50 | (7) | 7.4% |
Clayton Williams | CWEI | CWEI.AA | 969490AE1 | 7.750% | 04/01/19 | Caa1 | CCC+ | 78.74 | 89.62 | (12) | 26.3% |
Concho | CXO | CXO.GB | 20605PAB7 | 7.000% | 01/15/21 | Baa2 | BB+ | 98.00 | 106.50 | (8) | 8.0% |
Continental | CLR | CLR.AA | 212015AD3 | 7.375% | 10/01/20 | Baa3 | BBB- | 89.59 | 108.29 | (17) | 11.0% |
Devon | DVN | DVN.GT | 25179MAK9 | 4.000% | 07/15/21 | Baa1 | BBB+ | 94.60 | 105.67 | (10) | 6.6% |
Diamondback | FANG | FANG4175619 | 25278XAB5 | 7.625% | 10/01/21 | B2 | B+ | 98.12 | 100.00 | (2) | 7.9% |
Energen | EGN | EGN.IA | 29265NAS7 | 4.625% | 09/01/21 | Ba2 | BB | 83.78 | 88.50 | (5) | 9.3% |
EOG | EOG | EOG4108657 | 26875PAL5 | 2.450% | 04/01/20 | A3 | A- | 98.70 | 99.42 | (1) | 3.0% |
Gulfport | GPOR | GPOR4057726 | 402635AB2 | 7.750% | 11/01/20 | B2 | B+ | 91.00 | 94.75 | (4) | 11.6% |
Laredo | LPI | LPI4130481 | 516806AD8 | 5.625% | 01/15/22 | B2 | B | 86.29 | 88.00 | (2) | 10.4% |
Matador | MTDR | MTDR4305256 | 576485AB2 | 6.875% | 04/14/23 | B3 | B- | 95.25 | NA | NA | 8.6% |
Newfield | NFX | NFX.GI | 651290AP3 | 5.750% | 01/30/22 | Ba1 | BBB- | 99.00 | 102.99 | (4) | 9.5% |
Noble | NBL | NBL4274702 | 655044AK1 | 5.625% | 05/01/21 | Baa2 | BBB | 97.54 | NA | NA | 5.4% |
Oasis | OAS | OAS.AD | 674215AC2 | 7.250% | 02/01/19 | B2 | B+ | 73.73 | 97.78 | (25) | 33.0% |
Parsley | PE | ||||||||||
PDC | PDCE | PETD4031046 | 69327RAC5 | 7.750% | 10/15/22 | B2 | B+ | 95.50 | 90.50 | 6 | 8.0% |
Pioneer Natural | PXD | PXD.GH | 723787AJ6 | 7.500% | 01/15/20 | Baa3 | BBB- | 107.40 | 117.06 | (8) | 5.4% |
QEP | QEP | QEP.AE | 74836JAF0 | 6.800% | 03/01/20 | Ba1 | BB+ | 92.63 | 105.84 | (12) | 9.3% |
Range | RRC | RRC.GN | 75281AAM1 | 5.750% | 06/01/21 | Ba2 | BB+ | 79.80 | 104.25 | (23) | 10.2% |
Rice | RICE | RICE4117754 | 762760AB2 | 6.250% | 05/01/22 | B3 | B- | 73.00 | 95.00 | (23) | 11.8% |
Ring | REI | ||||||||||
RSP Permian | RSPP | RSPP4166894 | 74978QAB1 | 6.625% | 10/01/22 | B3 | B | 91.02 | NA | NA | 8.2% |
SM | SM | SM3816809 | 78454LAD2 | 6.500% | 11/15/21 | Ba2 | BB | 76.87 | 98.00 | (22) | 14.6% |
Southwestern | SWN | SWN4203946 | 845467AK5 | 4.050% | 01/23/20 | Baa3 | BBB- | 73.25 | 100.00 | (27) | 18.5% |
Whiting | WLL | WLL4049517 | 966387AG7 | 5.000% | 03/15/19 | Ba3 | BB- | 74.53 | 93.75 | (21) | 22.8% |
WPX | WPX | WPX4269760 | 98212BAF0 | 7.500% | 08/01/20 | Ba1 | BB | 81.01 | NA | NA | 20.3% |
My takeaways:
- While almost all of the bonds for these companies suffered losses in ’15, their losses were far less than those suffered by the BOTB Club members. This is certainly a reflection of greater market awareness and belief in the financial survival of the SCC members as a whole.
- Still, some companies have now crossed over the line which usually signifies financial distress, YTM of greater than 12% or so. Now included in that list are Oasis, Clayton Williams, Whiting, WPX and Southwestern, all with YTMs of greater than 15%. On the flip side, the lowest YTMs belong to Apache, Anadarko, Devon, EOG, Noble and Pioneer with less than 7%. These latter companies are among the select group considered top tier survivors by the market.
Conclusion
The main conclusion I reach from all of this data is that the companies included in the Sweet Crude Club are indeed those that the market has treated better than its counterparts in the BOTB Club. Many of these companies still have access to the capital markets and have stock valuations that permit them to raise capital without diluting existing reserves or production significantly. However, many of these companies still do not appear to fully reflect anything close to existing prices in their valuations, introducing a completely separate risk to leverage, namely valuation. As CAPEX, guidance and year-end financials and reserves are announced in the coming weeks, it will be interesting to see how the market reacts to what should be some eye-opening disclosures, in my opinion.
As far as trading or investing goes, I reiterate that I am waiting for those numbers before jumping into any E&P positions. The first half of ’16 appears to be full of upcoming “bad news” as expectations get lowered across the board; waiting until stock prices react well to what is perceived as bad headline news is often a viable strategy. Fundamental analysis can help discover relative comparisons that may be useful, but ultimately it is the volume and price movement generated by investors with deeper pockets that is the real litmus test; being “right” has little value if the market doesn’t agree with you.