Another Wave Of Downgrades For Oil Stocks

Wunderlich Securities recently released a report detailing their 2015 outlook for the onshore oilfield services industry. It might come as little surprise that analysts’ projections for the sector are grim.

Massive Spending Cuts

Analysts expect a huge reduction in CapEx by many oil companies in 2015, and some of the cuts have already been revealed. ConocoPhillips COP is reducing planned 2015 spending by $2.5 billion. PDC Energy Inc PDCE is cutting spending by 14 percent next year. Several other big names have also made official cuts to 2015 CapEx, including Continental Resources, Inc. CLR, Emerald Oil Inc EOX and Gastar Exploration Inc GST.

Analysts believe that most producers will hunker down and rely on their most profitable operations to carry them through the storm, but there will be a lag between spending cuts and production dropoff.

Related Link: Wunderlich Cuts Crude Oil Price Targets, But Remain Bullish On These 5 Energy Stocks

The First Domino Has Fallen

The first casualty of the collapse in oil prices has been the number of oil and gas permits, which plummeted by 40 percent month-over-month in November. Analysts predict that the next domino to fall will be rig counts, which are predicted to take a heavy hit in the next three to six months. The report indicates that Wunderlich sees demand for only 1,400-1,500 of the 1,920 rigs currently in operation. Once rig count drops, only then can the final domino (production) possibly fall.

Rating Cuts

Analyst Jason Wangler explains that companies that have struggled recently are likely most vulnerable. "We are even more cautious on names that had finally just pulled themselves out of some tough situations."

In light of the dreary outlook, Wunderlich has cut its ratings on Basic Energy Services Inc BAS and Key Energy Services Inc KEG from Hold to Sell. In addition, Wunderlich cut Pioneer Energy Services Corp PES from Buy to Hold.