Oil slump depleting energy-sector firms

Industry in belt-tightening mode

The oil market slump is continuing to weigh on the shares of energy sector companies and is slowing investment in the industry.

Oil producers will continue to scale back their operations this year because there are no signs that the oil market is going to rebound anytime soon, analysts said.

"For a lot of companies it's survival," said Rob Lutts, president and chief investment officer for Cabot Wealth Management, about the cuts in the energy industry.

Energy shares are under pressure for the same reason oil prices are -- a global glut of crude and concerns about weakening demand from an economic slowdown in China.

West Texas Intermediate crude for November delivery closed Friday at $45.70 a barrel on the New York Mercantile Exchange, down from about $90 a barrel a year ago.

Oil company shares have fallen an average of about 33.6 percent from a year ago, and most of the decline has occurred in the last three months, Lutts said.

"For future investment ... it's fairly bleak right now," he said. "We won't see this reversed until profit improvement in this sector."

Murphy Oil Corp. shares have fallen 57 percent year to date. The company's stock hit a new 52-week low of $24.52 on Friday before closing at $24.75 on the New York Stock Exchange.

Murphy Oil's peers have also seen their stock prices drop. Marathon Oil Corp. shares are down almost 60 percent; ConocoPhillips and Pioneer Natural Resources Co. are both down about 40 percent; and Noble Energy Inc. is down almost 55 percent.

"A lot of [exploration and production] projects within a pressured commodity environment become not attractive, leading the [sector] to cut investments, which spills over all the industry," Luana Siegfried, an analyst with Raymond James and Associates said in an email.

"That's what is happening with Murphy as an oil and gas producer," she said. "Clearly, those companies which have lower oil break-even price plays can keep on going in a better shape."

The slump in oil prices has forced energy companies, such as Murphy Oil Corp., to trim their capital spending budgets, lay off employees and idle rigs.

Murphy Oil's Chief Executive Officer Roger Jenkins said earlier this month that the El Dorado-based driller is preparing for further cuts in capital spending in 2016. The company previously reduced its 2015 budget by about 30 percent and its workforce by 7 percent. The company has not said how many of the layoffs are in Arkansas.

Industry experts said they expect soon to see consolidation in the energy industry as companies in better financial standing buy up those struggling most with the current price environment.

When asked if Murphy Oil had any acquisition plans, spokesman Kelly Whitley said in an email: "It's fair to say that everything is very dynamic/volatile in our industry at this time. We're not prepared to comment on any [publicly] at this time."

Siegfried said she doesn't expect to see Murphy Oil acquiring another company right now, "especially because the market seem to be on hold to see if prices can go even lower."

"On the other hand, the company could be actively looking for new opportunities asset-related in less risky areas," she said.

Analysts said another round of layoffs and spending cuts will come before the year ends. Many energy companies will also start financial moves, such as filing for bankruptcy and selling assets to pay down debt, they said.

Halliburton Co., one of the largest oilfield services companies, has cut an additional 2,000 jobs, mostly in North America, Bloomberg News reported Thursday. The company has laid off about 16,000 employees since oil prices began to fall.

"Usually you see a lot of pain in the industry right before the turnaround," said Phil Flynn, an energy analyst with Price Futures Group. "While there is a lot of pain to come, I think we are close to that bottom."

Business on 09/26/2015

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