Energy Companies Are In Denial: Oppenheimer

Energy Companies Are In Denial: Oppenheimer

Neither energy companies nor analysts are really confronting the possibility of a permanent drop in oil prices, say Oppenheimer analysts Fadel Gheit and Luis Amadeo, setting CAPEX targets and earnings estimates higher than current prices (both the spot price and futures for WTI is below $60). They say that investors should get ready for deeper cuts as well as downward earnings revisions.

“Most energy companies are still in denial as they are unprepared for a prolonged period of low oil prices, which could be a big mistake as wishful thinking is not a strategy, they write in a December 29 report titled Survival of The Fittest.

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Energy companies – Consensus earnings assume WTI above $85

They say that even CAPEX cuts in the 20% – 40% range that have already been announced are too low, because energy companies are expecting that they will still have some moderate production growth. But Gheit and Amadeo say those cuts will only be enough if oil goes above $70 and stays there. While they think an average price of $70 is a lot more reasonable than