Quantcast

These Oil Stocks Fell More Than 11% Today: Here's What You Need to Know Now


What happened

Shares of California Resources Corp (NYSE: CRC) , Diamondback Energy Inc (NASDAQ: FANG) , and W&T Offshore, Inc. (NYSE: WTI) are down 11.4%, 11.7%, and 8.9% at 1:16 p.m. EDT on Aug. 15. Earlier in trading, all three were even lower before stabilizing near their current trading prices.

Oil prices have a hand in today's big drop. At this writing, Brent crude futures are down more than 2% to $70.88, while West Texas Intermediate futures are down a sharp 3% to below $65 per barrel. That's a multi-month low for both the global and U.S. benchmarks, which haven't traded this low since April and June, respectively.

Oil pumpjack in motion.

Image source: Getty Images.

So what

There's a little more to the story for Diamondback and W&T Offshore. Diamondback Energy announced it was acquiring Energen Corp (NYSE: EGN) in a deal with a total value of $9.2 billion. Diamondback would fund the acquisition entirely with stock, paying 0.6442 Diamondback shares for each Energen share. This will add significant Permian Basin acreage to Diamondback's total, but will also result in an additional $830 million in net debt.

The acquisition of Energen shouldn't come as a surprise for Diamondback shareholders ; its CEO has made it clear that M&A is a key part of the company's strategy. And despite the market's reaction today, the company does have a solid track record with its prior acquisitions, though this is a substantial buy that may prove harder to leverage, particularly with the Permian's infrastructure getting maxxed out and it likely to be some time before many of the much-needed pipelines come online. Big, potentially transformative acquisitions often don't work out as well as management says they will, but Diamondback at least has a solid history of delivering per-share value with its past acquisitions.

W&T Offshore also released some news today, and there's far less upside to it than Diamondback's big acquisition. In a surprise move, the company's longtime CFO, Danny Gibbons, retired effective immediately. He will be replaced by Janet Yang, who has been with W&T for about a decade, as acting CFO. The company gave no further detail for its plans for a permanent replacement or why Gibbons retired without any notice.

The abrupt loss of a key executive can be unsettling, and that uncertainty, along with a sharp drop in oil prices , clearly spooked a lot of shareholders into selling today. But it's not likely that Gibbons' retirement signals anything fundamentally different for the company or its prospects.

Now what

While Diamondback and W&T Offshore announced material events that do affect their businesses, the reason behind today's big decline in oil prices bears watching. There could be a coming confluence of events that send oil prices down even farther. According to reports, OPEC's oil production rose in July, even though Saudi Arabia actually reported a decline in output. At the same time, U.S. crude oil inventories increased 6.8 million barrels, a shock to a market that was expecting a 2-plus-million-barrel decline in the stockpile.

U.S. oil production continues to climb higher, even as the peak U.S. summer driving season comes to an end and serious concerns about weakening global oil demand arise.

Put it all together, and today's sell-off for these three independent oil producers is a painful reminder that even the most high-quality oil producers' prospects are heavily tied to something they cannot control: crude oil prices .

10 stocks we like better than Diamondback Energy
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has quadrupled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Diamondback Energy wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of August 6, 2018

Jason Hall has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Personal Finance , Stocks
Referenced Symbols: FANG , CRC , WTI , EGN



More from Motley Fool

Subscribe






Motley Fool
Contributor:

Motley Fool

Market News, Investing










Research Brokers before you trade

Want to trade FX?