| | | IMO, it means one has to be sure to pick the right ones... it will mostly affect people who trade energy stocks for cap gains... the true integrateds can find ways to make margins in one segment of their ops... the OSX companies who can maintain decent backlogs will be out buying up smaller cash strapped ones and the big E&Ps and integrateds will be buying reserves/resources in the ground from the smaller high cost operators who are cash strapped for pennies on the dollar -- saw a lot of that the last time oil plunged to $9... look for the companies with strong financials and lots of cash in their war chests, while avoiding all others... realistically it will take awhile for the "drowning" to start AND remember that the cure for low prices is low prices -- just as we saw ng production explode driving prices down to $2 or less, that eventually meant enough drilling cutbacks, well curtailments, etc. that ng has now reverted more or less to its long term mean prices between $3-$4... look for similar action in price of oil.
I still like companies like CVX despite what the price/supply of oil does because they historically kept paying divvies and increasing them during booms and busts in oilpatch -- that's the whole idea of DGI, right? But this is where the XOMs, COPs and especially smaller fry will be tested -- XOM has the DGI pedigree, but that was built on the XOM that was predominantly oil... XOM of today is the largest ng producer, not oil... COP is now strictly an explorer and producer and will have to cut back some capex and opex when/if oil prices plunge because they won't have the refining, retailing, etc. to boost margins -- refining operations CAN make out like bandits during supply surges as they buy oil cheap and determine the sweet spot for how to refine -- what are they going to make with each bbl they refine, based on where the profits are. The pipeline and midstream people will do fine. |
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