Oil prices are at six-year lows and the price falls are causing havoc for investors throughout the energy sector.
Last week, shareholders in many of the major oil producers listed on the ASX watched in horror as share prices crashed through previous floors to reach new 52-week lows.
On Friday:
Santos Ltd (ASX: STO) closed at $5.99 after falling 9% during the session. The stock has now lost 58% in the past year and is trading at a decade low.
Origin Energy Ltd (ASX: ORG) fell 4.5% to close at $9.67. The stock has now lost 31% in the past year and is trading at a level last seen in mid-2008.
Oil Search Limited (ASX: OSH) slipped 3.2% to end the session at $6.70. The stock is off 29% in the last 12 months.
Arguably, it's now too late to sell and potentially there is more upside than downside at these levels.
In fact, energy giant Woodside Petroleum Limited (ASX: WPL) appears to have found support around current levels having traded in a reasonably narrow band over the past six months.
Meanwhile, there is a glimmer of hope that the multi-year low share prices could begin to spur merger and acquisition (M&A) activity. A market rumour last week (according to a report in The Australian) suggested that Kerry Stokes' Seven Group Holdings Ltd (ASX: SVW) is mulling a bid for Senex Energy Ltd (ASX: SXY). Senex's share price jumped 5.5% on Friday to 19 cents.
A move by Seven Group could spark a round of consolidation within the sector, particularly at the smaller end, considering the value destruction which has occurred in the past 12 months. Senex for instance has lost 71%, while Drillsearch Energy Limited (ASX: DLS) is down 47%.
The oil market is notoriously cyclical and for this reason investors need to take a long-term through the cycle view when analysing the sector. Just as top of the cycle conditions don't last forever, neither do bottom of the cycle conditions.
