In pursuit of becoming the largest Permian Basin operator, Occidental Petroleum (OXY, Financial) made a deal to acquire Anadarko Petroleum, leading to it being taken to the cleaners by the world’s greatest value investor. Shareholders in Occidental seemed unimpressed with the massive debt intake associated with the buyout and have dumped the stock. As a result, Occidental shares are nearly down 50% in the past 12 months.
However, Occidental’s disappointing stock performance is not an outlier among oil producers with exposure to America’s hottest oil field, the Permian Basin. Anadarko, for one, already had lost nearly 30% before Chevron (CVX, Financial) and Occidental started their bidding war, which the latter eventually won. Diamondback Energy (FANG, Financial), a pure Permian Basin player, has lost 23% so far in the past year. Pioneer Natural Resources Company (PXD, Financial) has seemed to be the best performer among the bunch after beating earnings expectations, but it still has lost 31% in the same period. Shares of Concho Resources (CXO, Financial) have lost nearly half of their stock price in the same period. Whiting Petroleum Corp. (WLL, Financial) seemed to have suffered the most, losing 86% in the past 12 months after announcing layoffs and delivering a surprise loss to its investors in its recent quarter.
While revenue and earnings projections are higher for next year, at the same time, they are a little all over the place for the producers. Both Pioneer and Concho appear to have stronger balance sheets among the rest. Pioneer had a debt-equity ratio of 0.19 times, while Concho had 0.25 times. Occidental will obviously be the most leveraged in this group, followed by Apache with 1.3 times debt-equity.
With crude oil down 22% for the past 12 months, oil producers have mostly underperformed expectations. Despite the tremendous stock market reactions to the Permian operators, the investor sentiment weakness in the energy sector may still be in its early stages. The International Energy Agency also sees bountiful oil supply mostly coming from the U.S. over the next nine months.
Today may not be the most opportunistic time to invest in the beat-down sector of Permian producers, but Pioneer and Concho seem worth adding to an investor’s watchlist.
Disclosure: Not invested in any of the companies mentioned.
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