By Philip van Doorn, MarketWatch
Investors shocked at Saudi Arabia’s decision to lower oil prices and increase production sent financial markets reeling. A concern now for the oil and gas industry is which players can survive a prolonged market imbalance.
West Texas crude oil for April delivery /zigman2/quotes/211629951/delayed CL.1 +4.78% fell as much as 25% to $31.13 a barrel Monday. That action followed Saudi Arabia’s announcement Saturday that after failed negotiations between OPEC and Russia to cut production in an attempt balance supply with reduced demand as the coronavirus spread, it would actually lower its own prices while increasing production .
“Now the question is, what is the Russian response?” said Philip Orlando, chief equity market strategist for Federated Hermes, in an interview. “Do they hold their breath until they turn blue? Or do they say, ‘You have the market weight here, why don’t we sit down to cut and stabilize the market?’ That may be too obvious and rational, so I have no idea how this is going to end up.”
Highly leveraged energy companies
Banks with heavy exposure to the energy industry may be facing defaults, loan losses and other fallout. Here’s a list of banks with the most exposure as a share of tangible common equity.
But how about the energy borrowers? Starting with the S&P Composite 1500 (made up of the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.48% , the S&P 400 Mid Cap Index /zigman2/quotes/210599897/delayed MID -0.52% and the S&P Small Cap 600 Index /zigman2/quotes/210599868/delayed SML -1.03% ), here are the 20 U.S.-listed oil companies with the highest percentages of long-term debt to equity, according to FactSet, based on their most recent regulatory filings as of March 6:
|Company||Ticker||Long-term debt/ equity||Industry|
|Equitrans Midstream Corp.||/zigman2/quotes/205653347/composite ETRN||90.2%||Oil & Gas Pipelines|
|Tetra Technologies Inc.||/zigman2/quotes/209715792/composite TTI||84.6%||Oilfield Services/Equipment|
|Apache Corp.||/zigman2/quotes/200648444/composite APA||71.8%||Integrated Oil|
|Core Laboratories NV||/zigman2/quotes/207238091/composite CLB||66.1%||Oilfield Services/Equipment|
|Oneok Inc.||/zigman2/quotes/205201756/composite OKE||66.0%||Oil & Gas Pipelines|
|U.S. Silica Holdings Inc.||/zigman2/quotes/206361964/composite SLCA||63.1%||Other Metals/Minerals|
|Archrock Inc.||/zigman2/quotes/206867288/composite AROC||63.1%||Oilfield Services/Equipment|
|Nabors Industries Ltd.||/zigman2/quotes/202661377/composite NBR||62.8%||Contract Drilling|
|Denbury Resources Inc.||/zigman2/quotes/206163509/composite DNR||60.5%||Oil & Gas Production|
|Gulfport Energy Corp.||/zigman2/quotes/203981280/composite GPOR||59.7%||Oil & Gas Production|
|Consol Energy Inc||/zigman2/quotes/208773703/composite CEIX||58.7%||Coal|
|Laredo Petroleum Inc.||/zigman2/quotes/201779769/composite LPI||58.1%||Oil & Gas Production|
|Halliburton Co.||/zigman2/quotes/210488727/composite HAL||57.7%||Oilfield Services/Equipment|
|Range Resources Corp.||/zigman2/quotes/205059849/composite RRC||57.5%||Oil & Gas Production|
|Williams Companies Inc.||/zigman2/quotes/205467183/composite WMB||56.7%||Oil & Gas Pipelines|
|Exterran Corp.||/zigman2/quotes/202051283/composite EXTN||53.3%||Oilfield Services/Equipment|
|Occidental Petroleum Corp.||/zigman2/quotes/207018272/composite OXY||53.1%||Oil & Gas Production|
|Penn Virginia Corp.||/zigman2/quotes/200301793/composite PVAC||51.7%||Oil & Gas Production|
|Noble Corp. plc||/zigman2/quotes/207690683/composite NE||50.5%||Contract Drilling|
You can click on the tickers for more about each company.
Turmoil, the economy and a silver lining
The S&P 500 hit its most recent record high Feb. 19, showing how long it took for the risk to the global economy from the spread of the coronavirus to affect the U.S. stock market. It has been too early for economic reports to show any effect from supply-chain disruptions or reduced revenue for travel-related industries to hit home.
Last week’s employment report showed the U.S. economy added 273,000 jobs during February, with the unemployment rate falling back to a 50-year low of 3.5%.
Luca Paolini, chief strategist at Pictet Asset Management in London, believes investors may stage a strong “relief rally” soon, because stock-market action “has been so brutal.”
But he also said during an interview that “it is quite unusual for a bear market to anticipate a recession even before we see negative indicators” in the U.S. A brief relief rally aside, he doesn’t expect U.S. stocks to bottom until there is a weakening of economic growth.
“Then all the bad news will be out,” he said.