Shares of L.A.’s two publicly traded oil companies continued to get hammered last week as crude oil prices hit a 12-year low.
California Resources Corp., the Chatsworth spinoff from Occidental Petroleum Corp. of Houston, took the worst beating as its shares fell 28 percent for the week ended Feb. 10, making it the biggest loser on the LABJ Stock Index. (See page 42.) Then the stock price plunged an additional 26 percent Feb. 11 to close at a mere 61 cents a share. That’s a drop of 48 percent in just six trading days. Over the past 52 weeks, the stock is down 90 percent.
Breitburn Energy Partners, an L.A. master limited partnership, wasn’t far behind, dropping 22 percent for the week ended Feb. 10 and another 6 percent Feb. 11 to close at 51 cents a share. Breitburn shares have shed 93 percent of their value over the past 52 weeks.
The immediate cause for last week’s plunges was the continued cratering of oil prices. West Texas Intermediate crude, the standard benchmark, closed Feb. 11 at $26.13 a barrel, the lowest price in more than 12 years. This triggered a broad selloff of oil stocks.
But California Resources and Breitburn have been hit much harder than many of their peers for one reason: massive debt. California Resources took on $8 billion in debt as a condition of its spinoff from Occidental in late 2014, just as oil prices had started to collapse. That debt has only been whittled down to $6.4 billion.
Breitburn, a much smaller company than CRC in terms of revenue and oil production, took on roughly $2 billion in debt when it purchased a rival oil company in July 2014, three months before the oil downturn. The company got some relief last year with a $1 billion infusion from EIG Global Energy Partners of Washington, D.C., in the form of new debt and acquisition of preferred units of Breitburn.
Oil companies loaded with debt are having a more difficult time surviving the crisis in the oil patch, said Luana Siegfried, equity research associate in the Houston office of Raymond James and Associates of St. Petersburg, Fla. With oil prices dropping, making the debt payments has become ever more challenging.
Siegfried said that unless oil prices rebound sharply soon, even tougher times loom for debt-laden oil companies.
Speaking of California Resources, Siegfried said it’s likely to avoid bankruptcy, but the situation will get worse later this year without an oil price turnaround.
As for Breitburn, it suspended shareholder distribution in December and the resulting selloff sent the share price into penny stock territory. It faces a crucial milestone in April as its borrowing base is up for redetermination and another moment of truth this summer with a potential delisting from Nasdaq.
