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What: It would appear that the post-Brexit rally has come to an end for oil and gas producers as shares of Denbury Resources , Chesapeake Energy , Southwestern Energy , Eclipse Resources , and California Resources Corporation are all down more than 10% today. Like so many other pops and drops before this one, today's movement is brought on by lower oil and gas prices.
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So What: It seems that many people on Wall Street can't quite figure out what Britain's EU referendum vote means for the energy market. After last week's gains that saw the price of West Texas Intermediate and Brent crude hover around the $50 a barrel mark, today prices for both are down more than 3.5%, to $47 and $48 per barrel, respectively.
What's even worse for gas producers such as Chesapeake, Eclipse, and Southwestern is that natural gas prices have taken a sharp dive today. The average price of natural gas at the New York Mercantile Exchangeis down more than 6%, to $2.74 per thousand cubic feet (mcf). While that is well above the lows we saw recently coming out of the mild winter, it is still a price that doesn't lead to huge profit margins, especially when you consider that realized prices are typically below the spot price quoted on Wall Street.The same can be said for both Denbury and California Resources Corp. Both companies' breakeven price for oil is in or near the $45-$50 per barrel price range, so the companies are teetering on profitability today.
For Chesapeake, California Resources, and Southwestern, the situation is also compounded by the fact that each is dealing with rather onerous debt levels. Refinancing those debts has been coming at greater and greater costs. Without higher oil and gas prices to improve profitability, it will be incredibly difficult for the companies to pay down their debts without having to go to more desperate measures such as large asset sales. This is slightly less of a problem for Eclipse since its debt load is less onerous, but the company issued shares to raise capital recently.
Data source: S&P Global Market Intelligence.
Now What: Based on the rapid ups and downs of oil prices and the market as of late, it's hard to put a whole lot of weight on these big stock moves. We are just as likely to see an equally large jump tomorrow. For investors in all of these companies, the big focus needs to be on lowering debt loads and getting back to profitability. Chances are, it will take higher oil and gas prices for that to happen, but those prices need to last more than a day or two to really matter.
The article So Much for the Brexit Rally: Oil and Gas Prices Have Producers Reeling Today (DNR, CHK, SWN, ECR, CRC) originally appeared on Fool.com.
Tyler Crowe has no position in any stocks mentioned.You can follow him at Fool.comor on Twitter@TylerCroweFool. The Motley Fool owns shares of Denbury Resources. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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