Underperformance next to crude oil
Last week (ended May 12, 2017), offshore oil (USO) and gas (UNG) producer Cobalt International Energy (CIE) saw its stock price underperform crude oil prices by a wide margin. Cobalt International’s stock price fell from $0.31 to $0.26, whereas crude oil prices rose from $46.22 per barrel to $47.84 per barrel during the same period.
Cobalt’s stock price action last week was heavily influenced by its earnings. CIE announced 1Q17 earnings on May 8, 2017, before the market opened. The company reported a worse-than-expected loss of $69 million. Wall Street analysts were expecting a loss of $66 million.
In 2016, CIE’s stock fell ~77%, whereas so far in 2017, the stock has fallen ~79%. The stock hit a 52-week high of $2.80 on May 17, 2016. It hit a 52-week low of $0.25 on May 11, 2017.
Medium-term price action
Cobalt International’s stock price has apparently been unable to rally, despite the ~84% rise in crude oil prices from February 2016. CIE’s stock price has declined from $2.02 to $0.26 despite crude oil prices moving up from the low of $26.05 to $47.84 since February 2016.
CIE is now trading below its 50-day and 200-day moving averages. On May 12, 2017, CIE’s stock price closed at $0.26, while its 50-day and 200-day moving averages stand at $0.43 and $0.93, respectively. CIE’s stock price is now far below its 200-day moving average.
Fiscal 2017 guidance
Cobalt International’s exploration efforts are currently focused in the deepwater US Gulf of Mexico. Its lack of significant production so far and its high debt load of ~$2.5 billion is a steep concern for CIE. As of March 31, 2017, CIE had cash and cash equivalents and short-term investments of ~$770 million. According to CIE’s 1Q17 earnings press release, for fiscal 2017, it expects total cash outlays in the range of $550–$650 million. In 1Q17, CIE spent ~$196 million.
By comparison, shares of Marathon Oil (MRO) and Occidental Petroleum (OXY) have risen 0.28% and 0.78%, respectively, in the past week. Oil and gas exploration and production companies (XOP) outperformed the S&P 500 ETF (SPY) last week as well.
In the next part of this series, we’ll examine the possible trading range for CIE stock this week based on implied volatility.