In 2023, energy enterprises grappled with a formidable challenge, a stark departure from the robust rally witnessed in the two preceding years. The Energy Select Sector SPDR Fund (NYSEARCA:XLE), a vital benchmark, mirrored the plight of the doomed oil stocks with a 2.33% share price decline in the tumultuous past year. As we look ahead to 2024, projections indicate that crude oil prices will stabilize around the $80 per barrel range. Although the Organization of the Petroleum Exporting Countries and its allies (OPEC+) have recently implemented supply cuts in a bid to support the market, the energy sector remains susceptible to heightened volatility, particularly if geopolitical tensions continue to escalate.
Following COP28, where global leaders pledged to shift from fossil fuels to renewable energy, over half of the participating nations, including major oil producers like the UAE, committed to “phase down” or “phase out” oil production. This landmark agreement exerted immense pressure on the fossil fuel industry, making these three oil stocks vulnerable investments to offload before facing inevitable challenges amid evolving market dynamics.
Icahn Enterprises (IEP)
The recent trajectory of Carl Icahn’s investment venture, Icahn Enterprises (NYSE:IEP), has left investors in a predicament. Following a once robust dividend payout cut from $2 to $1 per share, the firm’s dividend yield has dramatically plunged, previously soaring above 25%. This reduction diminished its standing in the energy sector and echoed the repercussions of a troubling report by Hindenburg Research in May. The report accused the enterprise of engaging in practices akin to a Ponzi scheme, using new investor funds to support allegedly “unsustainable” dividends, casting a long shadow over its financial strategies.
Moreover, IEP’s stock has witnessed a steep 65.35% dip year-over-year. The third-quarter financials further accentuate the turmoil, with GAAP earnings per share of negative cent and revenue declining 10.3% year-over-year to $3 billion. Additionally, with negative net income for the past five consecutive years, the firm’s prospects for a swift recovery seem increasingly bleak, fostering investor skepticism about its future.
BP Prudhoe Bay Royalty Trust (BPT)
The BP Prudhoe Bay Royalty Trust (NYSE: BPT), anchored in Alaska’s prolific Prudhoe Bay oil field, has unfortunately cemented its position as one of the most precarious investments within its sector. The trust, managed by The Bank of New York Mellon, has announced yet another quarter without distribution. This marks the fourth consecutive quarter of no payouts, a direct consequence of oil prices failing to meet the threshold above the Trust’s escalating chargeable costs. This pattern underscores a grim trend, highlighting the trust’s struggle to navigate the volatile oil market.
Furthermore, BPT’s stock has plummeted by an alarming 77.82% in the past year, with a jaw-dropping decline of 98% over the past decade. Such numbers not only depict a harrowing picture for the trust but also starkly contrast with the sector’s broader financial health. When juxtaposed with the sector’s median revenue growth of negative 4.98%, BPT’s own downturn at negative 69.57% is markedly pronounced, underscoring the magnitude of its financial woes.
NCS Multistage Holdings, Inc. (NCSM)
Adding to its troubles in early 2023, NCS Multistage had to earmark $17.5 million for a litigation provision due to a jury verdict related to damages from 2018 attributed to a product defect. This legal challenge not only strained its finances but also highlighted the operational risks of its business model.
Subsequently, by the third quarter of 2023, the company’s revenue fell to $38.3 million, down 22% year-over-year. This was a direct consequence of shrinking sales, particularly service revenues in North America and a decrease in international service revenues, slightly mitigated by increased international product sales. This period also saw rig counts decline by 6% in Canada and 15% in the United States, further stressing the broad challenges NCS faces in stabilizing its operations and finances.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines