They're in the oil business... They haven't turned a profit in five years... And they have more debt than cash...
Oil and gas producers Goodrich Petroleum (GDP) and Penn Virginia (PVA) were once the darlings of the shale revolution. But since peaking in 2014, Goodrich and Penn Virginia have been some of the worst-performing names in the sector... down 95% and 97%, respectively.
These companies are in deep trouble today. They're on the verge of bankruptcy. And they aren't alone...
Right now, several shale companies are caught in the "debt death spiral." During the height of the boom in shale production in the U.S., companies were focused solely on acquisitions and growth. To compete against bigger producers and rapidly increase growth, smaller names like Penn Virginia and Goodrich took on lots of debt. They also plowed the hundreds of millions of dollars in operating cash they were generating back into the ground.
That's why neither company made a profit from 2011 to 2014 – despite the average oil price being $95 per barrel.
With the average price around $52 per barrel this year, these companies are on the verge of bankruptcy. Counting this year, they'll have five years of net losses on top of massive debts.
But Goodrich and Penn Virginia aren't alone. The table below shows what I call the "Losers Club." These oil companies all have net losses, massive debts, and sinking stock prices over the past five years.
|
Company
|
Market Value
|
Enterprise Value
|
Net Loss*
|
Share Price Fall From Peak
|
|
Cobalt International
|
$3.4B
|
$3.8B
|
-$508M
|
-74%
|
|
Paramount Res.
|
$1.3B
|
$2.5B
|
-$208M
|
-76%
|
|
Erin Energy
|
$833M
|
$1.0B
|
-$124M
|
-58%
|
|
NuVista Energy
|
$550M
|
$727M
|
-$54M
|
-58%
|
|
Magnum Hunter
|
$172M
|
$1.5B
|
-$145M
|
-85%
|
|
Source: Bloomberg
|
|
* Trailing 12 months data |
The difference between market value and enterprise value shows the "net debt." That is debt minus cash. So the wider the gap between market value and enterprise value, the more debt the company has.
The net loss column shows where the company stands over the past 12 months. The last column shows how far the stock is down from its highest point since 2010.
None of the producers in this table were able to make a profit with the oil price at $95 per barrel. So while these companies aren't guaranteed to go bankrupt, there's likely more pain ahead for them...
If you're looking to invest in the sector, beware of these companies. They're a ticket to failure.