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No Quarter for the Drillers

Following a strong second quarter in which it looked like the energy sector might finally be on the mend, the third quarter turned out to be abysmal. West Texas Intermediate (WTI) began the quarter near $60 a barrel, but the benchmark oil price plunged 24% in Q3, crushing the energy sector. Natural gas prices fared better, but still dropped 12% during the third quarter, and have been in the doldrums now for nearly as long as oil prices.

The Energy Select Sector SPDR ETF (XLE), which is heavily concentrated in giants like ExxonMobil (NYSE: XOM), Chevron (NYSE: CVX) and Schlumberger (NYSE: SLB), lost 18.4% for the quarter. The SPDR S&P Oil and Gas Exploration and Production ETF (NYSE: XOP), which is more representative of the smaller-cap drillers, dropped 28.6% in Q3.

The decline was broad-based across the energy space. Of the 421 publicly traded energy equities in my database, only 24 — 5.7% — registered a positive total return for the quarter. The average energy stock lost 29.3%.

Here are the top 10 energy performers sorted in order of descending Q3 total return:

151027TELtable1

  • EV = Enterprise value in billions as of Oct. 23
  • Q3 = Q3 total return calculated from the close on June 30 to the close on Sept. 30, adjusted for dividends paid during the quarter
  • YTD = Year-to-date total return

Several sub-sectors are represented in the top 10, but refiners account for fully half the list. The refining sector has excelled throughout this energy bear market, but now faces a significant risk of contracting margins.

The 10 worst performers lost more than 70% each during the quarter. This doghouse featured highly leveraged oil and gas producers and a fracking sand miner:

151027TELtable2

Even though the bear market in the energy sector is now over a year old, there are still some 80 energy stocks in positive territory for 2015. Here are the top 10 for the year through Q3:

151027TELtable3

With the exception of the refiners, the sector looks oversold. Join us at The Energy Strategist for our most up-to-date recommendations on weathering the rest of this storm, and on making sure your portfolio is positioned to benefit from the eventual recovery.

(Follow Robert Rapier on Twitter, LinkedIn, or Facebook.)

 

 


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