As Oil Plummets, How Much Pain Still Looms For US Energy Firms?

As Oil Plummets, How Much Pain Still Looms For US Energy Firms?
With nearly a quarter of US energy shares' value wiped out by oil's 6-month slide, investors are wondering if the sector has taken enough punishment.

Reuters

NEW YORK, Jan 12 (Reuters) - With nearly a quarter of U.S. energy shares' value wiped out by oil's six-month slide, investors are wondering if the sector has taken enough punishment and whether it is time to pile back in ahead of earnings reports later this month.

The broad energy S&P 1500 index gained more than 4 percent over the past month, suggesting many believe markets have already factored in the pain caused by oil prices tumbling by more than half since June below $50 a barrel.

Yet since the start of this year, most energy stocks have given up some of those gains, revealing anxiety that some nasty surprises might still be lurking somewhere and that last month's bounce may not last.

A closer look at valuations and interviews with a dozen of smaller firms ahead of fourth quarter results from their bigger, listed rivals, shows there are reasons to be nervous.

What small firms say is that the oil rout hit home faster and harder than most had expected.

"Things have changed a lot quicker than I thought they would," says Greg Doramus, sales manager at Orion Drilling in Corpus Christi, Texas, a small firm which leases 16 drilling rigs. He talks about falling rates, last-minute order cancellations and customers breaking leases.

The conventional wisdom is that hedging and long-term contracts would ensure that most energy firms would only start feeling the full force of the downdraft this year.


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