The crashing oil price has had a predictable and well-documented impact on the shares of FTSE 100 majorsBP and Royal Dutch Shell. But these arent the only victims far from it.
Metals, Minerals, Oil
Most of us think of BHP Billiton (LSE: BLT) as a mining monolith, but it is an oil and gas producer as well. This hasonly aggravated its recent slide, which has seen its share price slide anastonishing 50% over the last five years.
Falling energy prices have forcedBHP Billiton to cutits exposure toUS onshore shaleoil and gas, which wasbecoming increasingly unprofitable at $50 a barrel, while itsdiminishing conventional offshore oil reserves have further knockedproduction. It now plans a reduced $2.9bn of petroleum capital expenditure for the 2016 financial year, down 6% from prior guidance of US$3.1bn.
BHP isnt giving up, however, buyingprospective oil acreage in Western Australia and the Western Gulf of Mexico. Chief executive Andrew Mackenzierecently saidit remainson track to meet its production targets with $200m less capital investment. Production is one thing, but higher prices are another. Until oil recovers, BHPs juicy 7.52% yield remains on sticky ground.
Just The Fac, Maam
Oil services companyPetrofac (LSE: PFC) is available at a tempting valuation of 7.62times earnings, but experienced investors know this kind of numberpoints to trouble down below. The companys share price is down 43% over the last five years, yet it has shown signs of life lately, risingnearly 15% in the last month.
Actually, Petrofac got off relatively lightly in the recent crisis, largely due to its focus on the Middle East and Central Asia, where fields are cheaper to build and operate. It hasalso enjoyed successin winning new business and now has a backlog worth $20.9bn, up 2bn over the last year.
While underlying first-half profits slipped by 4% it should enjoy a second-half uplift, as a number of projects are delivered, while earnings per share are forecast to rise a whopping 174% in 2016. Suddenly, that valuation looks tempting. The yield is decent at 5.1%, covered 2.6 times, andlooksmore sustainable than many in the sector. It could still do with pricieroil, though.
Uh-Oh, Weir In Trouble
It has been a dismal 12 months for Glasgow-based engineer Weir Group (LSE: WEIR) itsshare price has halved during thattime. Its up 10% in the last few days, however, after delivering a less-worse-than-expected trading statement yesterday.
Yes, all major classes of business were down, with oil and gas original equipment falling a whopping 60%, but thanks to hefty cost-cutting, full-year earningsare still on course for consensus estimates. There is always a rewardfor beating expectations, nomatter how low those expectations were. Trading at eight times earnings and yielding 3.71%, some will be tempted.
Weir is still hurting from the plummetingUS shale rig count and mining sectorretrenchment, as its clients delay investments, slash spending and mothball higher cost mines. Weir responded with 25 million of savings and workforce reductions, but may have to dig even deeperifthe Saudi attack on the US shale industry continues.
We all know exactly what these companies need to turn things round. Ifoil does recover they shouldfly again. That remains a big if.
If you think oil has further to fall you might want to look elsewhere on the FTSE 100.There areplenty of promising investments if you know where to look.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Petrofac. The Motley Fool UK has recommended Weir. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.