Performance by production mix
WTI (West Texas Intermediate) crude oil has fallen by more than 10% this month, as of January 9. Within the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), the stocks operating with a production mix of crude oil greater than 90% have fallen by 14.6%. The basket of stocks includes Kosmos Energy (KOS), Denbury Resources (DNR), and VAALCO Energy. This series analyzes the financial performance of companies operating with various production mixes. The graph below shows this month’s performance of XOP companies by production mix.
Stocks operating with a production mix of 70%–90% in crude oil have fallen by 13%, whereas stocks operating with a production mix less than 70% in crude oil have fallen by 11.4%. Apart from global factors, companies with high exposure to crude oil have been affected by the fall in crude oil prices.
Why crude oil may fall even lower
Top oil exporters like Russia (RSX) and Middle Eastern countries are involved in a market share war. As their economies depend on oil, the only way to drive revenue is to increase production. As supply surpasses demand, prices fall. Moreover, Iran could increase crude oil supply as soon the sanctions are lifted, which would worsen oversupply concerns. Among large cap upstream companies, ConocoPhillips (COP) has already fallen 7.2% so far this month.
In the next part of this series, we’ll discuss the sales performance of various companies based on their different production mixes.