Energy earnings will hint at who survives crude's rout

Tue Jan 26, 2016 1:20pm EST
 
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By Rodrigo Campos

NEW YORK (Reuters) - As crude prices crater, threatening a sizeable number of U.S. oil producers who are predicted to fail under continued global oil doom, the current earnings season will be an important window into who will be standing when the dust - and prices - settle.

The energy sector is expected to report a 74 percent drop in earnings per share in the fourth quarter of 2015 from a year earlier, and even that dismal view reflects the rosy days when oil was selling above $40 a barrel.

Currently hovering at $30 a barrel, oil is at a price that is unsustainable for most independent producers, Wells Fargo Securities said recently, naming companies such as Midstates Petroleum Co MPO.N and Sanchez Energy Corp SN.N that it said would need prices above $60 a barrel to break even.

To make it to a recovery that many say will not start until 2017, companies will have to have cash cushions, cost advantages and the ability to carry sizeable debts.

COST CUTTING "TO CLEAR STORM"

Most exploration and production companies now are spending more than $1 to extract $1 of oil, according to calculations by research firm KLR Group. Only four of 47 companies it tracked are above $1.10 in extracted product per $1 spent in the process; the median is below 70 cents on the dollar.

"Investors are looking at the relative finding costs and lifting costs to see who has the most cost advantaged operation, who’s prepared to clear the storm," said Matt Kaufler, portfolio manager at Federated Investors.   Continued...

 
A pumpjack brings oil to the surface  in the Monterey Shale, California, in this April 29, 2013 file photo. REUTERS/Lucy Nicholson