Shares of Pacific Drilling SA (PACD), an offshore drilling contractor, fell more than 10% on the NYSE to touch a 52-week low of $4.22 on Jan 5. The decline followed a fresh oil price slump. Most importantly, the company’s shares plunged roughly 57% during the last six months.
What Led to the Share Price Decline?
The West Texas Intermediate (WTI) crude has been trading significantly below the $100 per barrel threshold level since last August. This is owing to plentiful supply of the commodity especially in the face of lackluster global demand.
WTI crude has now touched a new low of $50.04 per barrel for the first time since Apr 2009. The recent fall is primarily due to an increase in oil supply from key producers like Russia and Iraq in the already existing oversupplied oil market. Oil production in Russia has recently reached a post-Soviet high, whereas Iraq is planning to significantly augment its oil export this month.
Strengthening of the U.S. dollar is also responsible for the oil price fall as it will be expensive for importers to buy crude, thus affecting demand.
Hence, with the drastic fall in oil prices, upstream energy players will ask for lesser drilling rigs for exploration and production activities. Also, with crude prices falling amid abundant rig supply, we don’t see Pacific Drilling earning significant cash flows for its shareholders.
All these are reflected in the 52-week low share price of the company.
Zacks Rank & Stock Picks
Currently, Pacific Drilling carries a Zacks Rank #3 (Hold).
Better-ranked players in the energy sector include Spectra Energy Partners LP (SEP), Cheniere Energy Partners LP (CQP) and Seadrill Partners LLC (SDLP). All these stocks sport a Zacks Rank #1 (Strong Buy).
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