CVI's Oil & Gas E&P Index: Uneven Pain In November

by: Daniel Jones

After a painful October, investors in the oil and gas E&P space continued to suffer throughout October as crude prices plummeted.

This brought shares of most E&P firms down, some meaningfully, but unlike in October, the pain was titled toward the small players.

This creates an opportunity for investors to buy into the small guys, especially if they see energy prices moving higher again.

After a painful October, investors in the oil and gas E&P space might have been hoping for a turnaround in November, or at least a flatlining. Unfortunately, those who were hoping as much, myself included, were greeted with more pain. As crude energy prices tanked, and even in spite of natural gas prices roaring higher for the month, most of the players in the space took another beating. Unlike in October, though, where the pain was uniform more or less across the board, what pain was experienced in November was tilted toward the little prospects in the space, not the big boys. For investors looking at attractive prospects moving forward, this could be a nice time to consider moving money around to focus more on these smaller, impaired plays, now that it looks like the bullish case for crude is back in focus.

A painful month

In the chart below, you can see the financial performance for the month of November of the oil and gas E&P index that I created, compared to the performance seen by WTI, Brent, natural gas (Henry Hub pricing), and the S&P 500. The index, it should be mentioned, is weighted based on market cap. As you can see by looking at the chart, November was painful. WTI crude prices tanked 22.2%, falling from $65.47 per barrel to $50.93 per barrel, while Brent prices fell 20.6% from $75.16 per barrel down to $59.70.

*Created by Author

To put this in perspective, the index I created for my Marketplace Service, Crude Value Insights, actually fared reasonably well. During the same month, it fell a more modest 6.3%, but the median decline was far more painful at 13.2%. The significant disparity here was driven by the allocation of the decline, but more on that later. Over the same period of time, the S&P 500 actually appreciated modestly, climbing 1.8%, while natural gas prices surged 29.3% from $3.31 per Mcf to $4.28. That jump was likely what helped alleviate the falloff in crude for some of the oil and gas firms since some of them produce a meaningful amount of natural gas.

To see how the data was laid out, I decided to break up the returns of the index based on quartile. In the lowest three quartiles, I included 13 companies, while in the largest, I had to include a 14th to match the 53 companies included in the list. This is down 1 company from the last time I looked at the list, because I had to adjust for the completion of the purchase of Energen by Diamondback Energy (FANG) that was completed in late November.

*Created by Author with Pricing from Google Finance

In the charts shown above, you can see that during November, the worst-performing company on a percentage basis was actually Legacy Reserves (LGCY). This is a significant holding in my own portfolio, so if anything, I am feeling more pain than most of my readers. During the month, it fell a whopping 48.9%, making it one of only two firms I cover that declined more than 40%. Only 5 firms total (9.4% of all companies in the index) fell 30% or more throughout November.

The best performer, according to the charts, was easily Amplify Energy (OTCQX:AMPY). Throughout November, Amplify rose 11.8%, making it the only company to see a double-digit increase in share price. A total of 7 companies (or 13.2% of all listed) reported increases in value during the month, with a mean return between them of 4.4% and a median return of 3.7%. From a short-term perspective, the investors in those groups were the real winners throughout the month.

Returns were tilted toward the big players

One thing I noted in my prior article on the index was that, for the month of October, there was no clear trend or relationship between the big players and the little players. In short, the market panicked and sent the entire basket of firms down by similar amounts. At the time, I made the case that this could have offered investors with attractive prospects if they elected to jump into the larger players since they likely were, on the whole, safer and would probably see upside before the small and medium players would. Even though very few players reported upside during the month, my overall gut feeling was correct.

*Created by Author

As you can see in the chart above, which illustrates returns for each company throughout November, with the furthest left on the chart being the largest company and the furthest right being the smallest, there was a size component this past month. The chart shows that, on the whole, big players appear to have held up better, likely because the market came to terms with some of its irrationality from the month before. In fact, the mean return of the top 10 E&P firms (as measured by market cap as of the end of October) covered from the list was -5.3% compared to the -13.8% mean return of the entire index. The return of the top 5 was even higher at -1.9%. By buying only the largest players, it appears investors could have mitigated losses during the month.


Based on the data provided, it’s clear that November was yet another bloody month for investors in the oil and gas space, including the E&P oriented investors out there. Fortunately, as trade tensions are starting to ease between the US and China, and as it’s likely that OPEC will elect to cut production in the near future, there’s a good chance that November will be the end of the bloodshed, but there are no guarantees and investors should just hold on tight for whatever ride lies ahead. There will likely be a bullish wave to end out the year, and with that we should probably see a nice resurgence in some of the smaller plays.

Disclosure: I am/we are long LGCY, MCEP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.