Despite US equity markets continuing their epic climb, a number of oil and gas firms still managed to flop. Here’s a look at the ones who didn’t even come close to making the cut…
For savvy investors, achieving success in the stock market is a marathon, not a race.
Yet it’s hard not to let panic sink in whenever some of the picks in your portfolio fall flat on their faces while their competitors soar.
Welcome to the bottom of the barrel.
With those that have skidded into new lows…do any of them have a chance of bouncing back? Let’s check them out…
5) Boardwalk Pipeline Partners (NYSE:BWP)
Gain since January 1st: -28.9%
Typically when a company commits to managing costs and streamlining expenses, investors tend to think quite highly of their efforts.
These aren’t one of those times.
See, based on BWP’s most recent debt figures, the MLP has a debt-to-EBITDA ratio of approximately 5.0 — which is very high.
In other words, its debt coverage shortfall is putting this company in danger.
While management has been actively trying to bring that multiple down to at least 4.0, they’ve been doing so at the expense of distributions.
And that hasn’t exactly sat well with investors as the Company axed distributions by a staggering 80%.
Needless to say, investors have headed for the exits, and aren’t likely to come back onboard anytime soon.
4) Hercules Offshore (NASDAQ:HERO)
Gain since January 1st: -37.4%
One of the biggest pet peeves for investors is when a company has to play catch up with industry trends.
Hercules has been found guilty of this faux pas as demand has soared for newer, more advanced drilling rigs that are capable of tackling deep, complex offshore basins.
The rig provider currently has a fleet of drills with an average age of 33 years, and just 5% of its fleet was built in the last 10 years.
Clearly, with oil and gas firms turning to new jackup rigs, HERO’s market share has been impacted…and that isn’t sitting well with investors.
A few new rigs were announced to come online shortly, but its little consolation when the company is also plagued by debt.
HERO’s market cap is around $640 million, but has $1 billion worth of net debt.
Even if HERO were to try and give its fleet a minor facelift, it’ll likely have to do so at the expense of stretching out its credit line.
The Company does have a backlog of about $1.4 billion in orders, and one of its new rigs is locked into a 5-year deal with Maersk in the North Sea.
But if new rig demand keeps going up, HERO could find its aging fleet getting passed over more often.
3) Geospace Technologies (NASDAQ:GEOS)
Gain since January 1st: -41.0%
It’s a tough business to be in when your customers are even more worried about their bottom lines than you are about yours.
Geospace specializes in seismic data equipment, and any chance oil companies have to put off spending money on seismic studies for exploration, they would.
Big Oil has been trimming down their CapEx over the past year to focus on maximizing the output from their existing wells. In turn, seismic studies are one of the first expenses that they typically cut.
This explains why GEOS saw a 10% revenue decrease year over year.
The good thing is that Big Oil can’t do without seismic studies indefinitely. It’s an absolute necessity the moment they sense that current production levels are peaking.
And so GEOS may present an enticing investment opportunity once we catch wind of some of its customers that are looking to re-up their capital budgets.
2) Alpha Natural Resources (NYSE:ANR)
Gain since January 1st: -49.0%
It should come as little surprise that coal stocks are at the bottom of the list.
However, the reasons for ANR’s decline took hold long before Obama’s harsh emissions rules.
For one, increased competition from cheaper, low-sulfur coal beds in the West, particularly the Powder River Basin in Wyoming, had a major impact on the entire Central Appalachian mining industry.
If that wasn’t enough, coal reserves in Central Appalachian have been declining over the years with the majority of the accessible seams almost tapped out.
The EIA estimates that coal production in eastern Kentucky and West Virginia will soon be half of what it was in 2008, plunging from 234 million tons to 112 million tons come 2015.
Metallurgical coal isn’t commanding the same dollars that it used to, which is leaving Alpha to shut in some of its production.
The industry as a whole is out of favor, with natural gas and alternative sources supplying a much larger portion of US energy.
The outlook for coal could get a boost by way of increased exports. But even then, met-coal producers aren’t getting much help from declining demand in China.
1) Walter Energy (NYSE:WLT)
Gain since January 1st: -66.6%
Last and least, is Walter Energy.
Another victim of being in an industry that’s gradually losing its fan base, Walter has taken the biggest fall out of all the coal stocks.
Sentiment for the future of coal – even though exports could help prop up the sector – is rather bearish.
Demand for metallurgical coal in particular has fallen off both domestically and abroad.
The market weakness has pulled coking coal down to an unprofitable $120 per ton, which is barely enough for Walter to break even.
Australia’s Bureau of Resources and Energy Economics didn’t do Walter any favors when it recently predicted that coking coal could fall to $110 per ton by 2015.
If prices keep sinking, expect Walter to do the same.
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