Energy Stocks Face Their Own Fiscal Cliff
NEW YORK (TheStreet) -- While the battle between Democrats and Republicans for the White House and Congress is very much up in the air, investors in the energy sector should prepare to fall off a fiscal cliff, regardless of how the vote unfolds in November.
Energy investors should prepare for integrated oil and gas giants -- and independent drillers -- to be constrained by high debts and spending levels, that may force CEO's to rein in exploration budgets sharply in 2013, impacting earnings across the sector.
Notably, as drillers try to extract what's been deemed a hundred year shale oil and gas resource, Chesapeake Energy(CHK) has spent much of 2012 selling assets to meet a $14 billion cash crunch, in last-ditch financial moves that may speak to wider industry pressures as firms try to balance drilling budgets with earnings and debt levels.
Third quarter earnings may reveal that Chesapeake's financial constraints heading into 2013 are an overall industry concern, cutting at the earnings expectations of integrated oil giants like Hess (HES) , specialized drillers like Cocho Resources (CXO) , Continental Resources (CLR) , SandRidge Energy (SD) and SM Energy (SM) , and rig contractors like Halliburton (HAL) , Baker Hughes (BHI) , Nabors Industries (NBR) , Helmerich & Payne (HP) and Patterson-UTI Energy (PTEN)
At issue is whether drillers across the U.S. oil and gas industry can rationalize spending budgets that outweigh production growth to shareholders, or if they will begin to pull drilling rigs in favor of returning cash or paying down debts .