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What: Shares of Pioneer Energy Services dropped as much as 10% during the trading day Tuesday following a downgrade from analyst group Jefferies.
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So What:The Jefferies downgrade is just confirmation of something everyone has already figured out: declining oil prices would lead to declining rig activity. Since Pioneer's entire business centers on renting out drill rigs and other drilling-related equipment, reduced rig activity was bound to cause the company some pain. According to a Baker Hughessurvey, just under a quarter of the rigs operating in the U.S. have been idled in the past three months alone.
Now What: It's hard to say exactly how many of the idled rigs belong to Pioneer, but it's safe to assume the company will not reach its target utilization rate of 89% since close to a third of its drilling rigs were without a contract in the previousquarter. The company will report earnings next week, which will provide a better idea of how much this decline in rig activity is hurting Pioneer. Until then, it's certainly not worth making serious investment decisions on this stock.
The article Why Shares of Pioneer Energy Services Corp. Dropped 10% Today originally appeared on Fool.com.
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