BUT DARKNESS LINGERS:
Nowhere to go but up for energy industry
Energy companies in the S&P 500 will see earnings drop 31.8 percent in the second half of 2016 compared to last year, according to the financial data company FactSet, a sign that continued low oil and gas prices are punishing the industry.
The worst-hit corporations are oil and gas drilling companies, which are expected to see earnings per share drop 102 percent compared to 2015, and oil and gas equipment and services, which will be down 92 percent, according to the latest financial reports.
Drilling and services firms are dropping so severely because many are exhausting their backlog of jobs.
Contracts signed before the price collapse, when oil companies were more optimistic, have run their course and revenues are drying up.
Buried in the data, though, is evidence that the oil and gas industry may be hitting bottom. Earnings are most frequently compared to the prior year, and two years after oil and gas prices began their collapse, there is
nowhere to go but up.
In other words, 2017 earnings won’t look so bad when compared to the horror that is 2016.
Even fourth-quarter 2016 earnings from the energy sector will likely be higher than the 4th quarter of 2015, as much as 15.1 percent, FactSet said.
The problem is that a 15 percent increase from a very small number provides little solace to investors who’ve seen the value of their shares plummet alongside the price of oil.
And hitting bottom doesn’t necessarily signal that a climb is about to begin.
There are still no signs of the oil market rebalancing. Oil and gas inventories remain high, production isn’t slowing fast enough and demand is weak.
And even if the oil glut is over, it will take months and years for oil companies to raise money and hire drillers and service companies again. A recovery measured in earnings per share will take years to realize.
This is not only a problem for investors, but also for the employees of these companies. Low earnings mean fewer jobs, as too many Houstonians have discovered.
Nevertheless, finding a bottom is better than suffering a continuing fall.