The price of Brent Crude slumped below $55 a barrel yesterday for the first time in more than five years, and there are fears now that it could even dip below $50.
That is not helping our oil and gas producers, to put it mildly — and it’s not just the smaller and higher-risk companies that are suffering.
BP is hurting
BP (LSE: BP) (NYSE: BP.US) dropped 22.3p on the day, for a 5.4% fall to 388p. And with crashing oil prices added to the company’s still-unfinished Gulf of Mexico business, the shares are now down 26% from their July 52-week high of 527p.
There’s a 48% fall in earnings per share (EPS) expected for the year just ended, followed by a further slip of 11% in 2015, but there’s a recovery of 17% currently penciled in for 2016. Those will be rerated downwards should oil slip further, but we are looking at P/E values of 11 for 2015 dropping to just over 9 for 2016, with dividends yields in excess of 6%.
Dividends could be cut if oil drops much lower, but cover for 2016’s predicted payout currently stands at 1.66 times — it could be better, but that’s not too bad.
Same goes for Shell
Things are bad for Royal Dutch Shell (LSE: RDSB), too, with its shares suffering a loss of 112.5p (5%) yesterday to 2,123p. That’s well on the way to reversing the mini-recovery that looked to be starting in mid-December, and takes the shares down 29% now from their 12-month record of 2,991p.
The forecast picture for Shell is rosier, albeit still at the mercy of further oil falls, and there’s a 32% EPS rise expected for 2014 followed by -15% and +10% for the next two years.
Shell is facing similar P/E multiples to BP, of 9.7 for 2014 rising to only 10.4 by 2016. And though predicted dividend yields are a bit lower at around 5.5%, cover should be slightly stronger at 1.73 times for 2016.
Exploration risk
The worst performer of the three, by far, is Tullow Oil (LSE: TLW). Its shares dropped 18p yesterday to end 4.3% down at 396p, but that’s only a small part of the story — from a 52-week high of 920p set almost a year ago, the Tullow price has plummeted by 57%!
The problem with Tullow is its much higher risk compared to the other two, as it’s an explorer that’s expected to record a loss per share for 2014. The prognostications for the following two years are good, but low oil prices might mean a cutback in some of the firm’s exploration plans heading into 2015 and beyond.