Which Exploration Companies Can Still Win Under Low Oil Prices

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Without a refining business to help offset low crude prices or the ability to export crude oil in quantity, among the hardest hit oil producers are the pure-play exploration and production (E&P) companies. The current price climate is especially harsh on smaller, more speculative producers who borrowed heavily to boost production and are now faced with paying off those debts with crude prices stuck below $50 a barrel.

While not facing quite the existential threat of the smaller companies, the large E&P players face not only declining profits, but widening losses. Analysts at Oppenheimer include 15 pure-play E&P companies in their coverage, including ConocoPhillips (NYSE: COP), Occidental Petroleum Corp. (NYSE: OXY), Anadarko Petroleum Corp. (NYSE: APC), Pioneer Natural Resources Co. (NYSE: PXD), and Devon Energy Corp. (NYSE: DVN).

For the universe of its coverage, Oppenheimer is downbeat:

Lower oil prices should help boost foreign volume under production-sharing agreements and ramp-up from new projects, partially offset by normal field decline and scheduled facility maintenance impact. Most large E&Ps are expected to report production increases despite reduced drilling activity and normal field decline … .

That doesn’t sound so bad, but the impact on earnings is significant. In fact, Oppenheimer expects just one of its covered companies to post positive earnings per share (EPS) and just two to report positive EPS in the fourth quarter. For the full-year, the analysts expect just six E&P companies to post positive earnings, and two of those are primarily natural gas producers. In 2016 only the two largest pure-play E&P companies are expected to post profits.

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