2 Oil Stocks That Could Drop to $0 in 2020

With oil prices falling to zero, the share prices of the Birchcliff Energy stock and Crescent Point Energy stock might also drop to zilch. Both oil companies are standing on shaky ground that could give way at any moment.

| More on:
Watch for the Warning Signs Stock Market Prices Trends 3d Illustration

Image source: Getty Images

The negative sentiment on oil stocks is likely to carry on for months. There will be more losers than winners as capital flees from a sector that is showing minimal signs of rebounding. Canadian oil companies are no longer attractive as they were in previous years. Some might even be insolvent before this year is over.

The shares of Birchcliff Energy (TSX:BIR) and Crescent Point Energy (TSX:CPG)(NYSE:CPG) are trading below $2. Their year-to-date losses are 42.8% and 68.5%, respectively. It might come to the point that the prices of these oil stocks will drop to zero in 2020.

Worst tumble

Investors should steer clear of Birchcliff. The tumble of this $380.29-million intermediate oil and natural gas company is much worse than its recent crash. The twin impact of plunging oil prices and the pandemic is so debilitating. Its market value is about 84% down from the level some five years ago.

If you think there is a slim chance of regaining lost ground in 2020, forget it. Birchcliff’s total outstanding debt is around $677 million. How can this Calgary-based company rise from the pits when its market cap is 56% of liabilities?

Furthermore, Birchcliff is cash-strapped. Dividend investors relying on the generous payouts over the past three years better take heed. The company no longer has the staying power to sustain dividends.

The dividend history of Birchcliff Energy is shorter relative to established dividend-payers in the sector. It has yet to prove its resilience during downturns. But with the oil problem, time is running out.

Lost lustre

Crescent’s liquidity position is far better than Birchcliff’s. In the first quarter of 2020, this $957.42-million producer of medium and light crude oil shifted to a modified working environment.

There was net debt reduction as well as $50 million savings in permanent operating expenses. But with the rapidly changing environment, management saw it fit to reduce the capital budget by $75 million. Crescent’s main focus now is to protect the balance sheet and financial liquidity.

In addition to reducing capital spending by 35%, the company slashed its dividends too. The move should be the last straw to dividend investors. The company already made multiple dividend cuts in five years. With the recent decrease, the next quarterly cash payment will amount to a penny per share per year.

The bigger problem is profitability. How will Crescent generate revenue if oil continues to trade for free or at rock-bottom prices? An oil price bounce is not likely to happen anytime soon.

Not giving up

Canada’s Prime Minister, Justin Trudeau, is not giving up on the oil and gas sector. He doesn’t agree with the assessment of many that oil is dead. The PM sees an opportunity for the oil sector to develop and implement innovations that will lessen greenhouse gas emissions.

The country’s economy will recover and perhaps see a healthy oil sector soon. Unfortunately, Birchcliff and Crescent Point do not have the luxury of time. Both oil companies are on the ropes, and insolvency is a strong possibility.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned.

More on Energy Stocks

Arrowings ascending on a chalkboard
Energy Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Canadian Natural Resources stock is well set up to beat the TSX as it continues to generate strong cash flows…

Read more »

energy industry
Energy Stocks

2 TSX Energy Stocks to Buy Hand Over Fist Now

These two rallying TSX energy stocks can continue delivering robust returns to investors in the long term.

Read more »

green energy
Energy Stocks

1 Magnificent TSX Dividend Stock Down 37% to Buy and Hold Forever

This dividend stock has fallen significantly from poor results, but zoom in and there are some major improvements happening.

Read more »

oil tank at night
Energy Stocks

3 Energy Stocks Already Worth Your While

Here's why blue-chip TSX energy stocks such as Enbridge should be part of your equity portfolio in 2024.

Read more »

Solar panels and windmills
Energy Stocks

1 Beaten-Down Stock That Could Be the Best Bet in the TSX

This renewable energy stock could be one of the best buys you make this year, as the company starts to…

Read more »

Dice engraved with the words buy and sell
Energy Stocks

Is Enbridge Stock a Buy, Sell, or Hold?

Here's why Enbridge (TSX:ENB) remains a top dividend stock long-term investors may want to consider, despite current risks.

Read more »

Gas pipelines
Energy Stocks

If You Had Invested $5,000 in Enbridge Stock in 2018, This Is How Much You Would Have Today

Enbridge's high dividend yield hasn't made up for its dismal total returns.

Read more »

Bad apple with good apples
Energy Stocks

Avoid at All Costs: This Stock Is Portfolio Poison

A mid-cap stock commits to return more to shareholders, but some investors remember the suspension of dividends a few years…

Read more »