The latest oil decline has sent the EPX index to its lowest levels since a gap down in September/October 2011 and the start of the uptrend in September 2010.
"At the same time, oil names have also underperformed gas names by more than 700 basis points since early May, though oil names are still outperforming on the year," RBC Capital Markets analyst Leo Mariani wrote in a note to clients.
In addition, stocks with solid hedges and balance sheets are best place to hide. If there is continued short-term weakness in crude prices, it will negatively impact the whole space.
However, a number of stocks have very solid hedge positions for 2012-2013 and/or strong balance sheets, which will help weather further oil downside better than the peers.
Following five stocks would be defensive given the downtrend in oil prices due to their hedge positions and balance sheets.
Anadarko Petroleum Corp. (NYSE:APC): Anadarko ended the first quarter of 2012 with about $3.0 billion of cash on hand, and generated approximately $132 million of free cash flow. For 2012, the company has a put option that would fetch a floor price of $107.19 per thousand barrels per day for crude oil and $4.69 for natural gas per million british thermal unit (MMBtu).
Concho Resources, Inc. (NYSE:CXO): The company recently amended its credit facility, increasing the aggregate lender commitments to $2.5 billion from $2.0 billion, equal to its $2.5 billion borrowing base. At March 31, 2012, Concho had approximately $185 million outstanding under its credit facility. For 2012, the company has oil swaps of $94.80 a barrel and natural gas swaps of 6.54 per MMBtu.
Devon Energy Corp. (NYSE:DVN): In the first quarter of 2012, Devon generated cash flow before balance sheet changes of $1.4 billion. At March 31, 2012, the company's cash and short-term investments totaled $7.1 billion, and its net debt to adjusted capitalization was 15 percent.
For the remainder of 2012, the company has 109,000 barrels per day of oil production hedged, or roughly 70 percent of forecasted oil production, at a weighted average floor price of $95 per barrel.
The company has also recently bolstered its natural gas hedging position. For the remaining three quarters of 2012, Devon has about 1 billion cubic feet per day protected at a weighted average floor price of $4.42 per thousand cubic feet. This represents about 40 percent of Devon's 2012 forecasted gas production.
EOG Resources, Inc. (NYSE:EOG): EOG has hedged about 28 percent of its North American crude oil production for 2012. For the period July 1 to December 31, 2012, EOG has crude oil financial price swap contracts in place for an average of 38,000 barrels a day at a weighted average price of $106.74 per barrel.
The company also has hedged approximately 45 percent of its North American natural gas production for 2012. For the period June 1 through December 31, 2012, EOG has natural gas financial price swap contracts in place for 525,000 million British thermal units per day (MMBtud) at a weighted average price of $5.44 per million British thermal units (MMBtu).
On the balance sheet front, through May 1, EOG's cash proceeds from asset sales were approximately $565 million. At March 31, 2012, EOG's total debt outstanding was $5.011 billion. Taking into account cash on the balance sheet of $294 million at the end of the first quarter, EOG's net debt was $4,717 million for a net debt-to-total capitalization ratio of 27 percent.
iStock doesn't think oil prices have become too low to cut production, but the above companies could see the least impact on their operations if prices have further downside. Providing quality reviews, articles and writings on crude oil, energy and gas online.
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