These 19 Oil & Gas Stocks Will Die Soon!

These 19 Oil & Gas Stocks Will Die Soon! By David Fessler Energy & Infrastructure Strategist The Oxford Club

I have been passionate about the oil and gas industry since I began analyzing stocks in the early 1980s. When I wake up every day, I focus in on the energy sector. In my efforts to uncover the next hot stock, I also stumble upon those bubbling with toxicity. That is why I created this time-sensitive Oil Company Death List report. Members are constantly asking, I bought XYZ stocks due to somebody s recommendation. They are losing value. Will the companies make it? Will I get my money back? What should I do? These are great questions. But they are hard to deal with since the law won t allow us as a Club to provide personalized investment advice. Still, these questions are of the highest importance to us at The Oxford Club. So I created this special report to help answer the countless questions surrounding the hard-hit oil and gas sector coming in from our Members. Plummeting Oil Prices Unless you ve been living under a rock for the last few months, you know that oil prices have crashed. Domestic crude is currently trading at 5 1/2-year lows. I have been covering this extensively in our daily e-letter Investment U and our newsletter Oxford Resource Explorer. For many companies operating in the energy sector, these beaten down equities represent a once-in-a-decade opportunity to pick up shares of high quality companies at dirt-cheap prices. And we have been actively recommending the best value plays to our Members. These are high-quality stocks that will easily shake off lower priced oil. And they are primed to lift off when prices start to rebound. But not all companies are in the same boat. Barely Staying Afloat Right now the situation is serious for certain oil companies. These are oil and gas companies who are extremely overleveraged. With oil prices trading in the $40 to $50 range, these 19 stocks are in extreme danger of going belly-up. And some of them are still being recommended by reputable analysts. Most of these companies have very little chance of survival in this lower-priced oil environment. 2

The Key to Survival Oil Company Death List For oil and gas companies to survive, they have to reduce spending. That is why many have slashed budgets by double-digit percentages. They know the key to surviving the energy crash in the short term is cash flow. But you can live on cash flow for only so long. In the long run, earnings are what matter. Every day, more and more exploration projects and drilling sites are being axed. And most of their cash reserves are exhausted. Plus, the chance of fresh capital coming in is close to zero! In the beginning of January, Texas-based WBH Energy L.P. was the first oil company to file for bankruptcy protection in 2015. The private company stated that its lender refused to advance money. For WBH Energy, the cash flow well had already dried up. And unfortunately, there are many more to come. Swimming in Debt Since the energy boom took off in the U.S., many oil and gas companies took on loads of debt in an effort to leverage their returns. Since 2010, American oil and gas companies have increased their borrowings by 55% to almost $200 billion. The higher risk players acquired leases and drilled wells even if that meant outspending their incomes. At the time, that was a working business model. They used debt to bridge shortfalls in cash so they could keep building up their oil field portfolios. But today, the overleveraging game is coming back to bite them in the butt. Ugly Balance Sheets The oil industry is capital intensive. It requires a lot of equipment to pull black gold out of the ground. That is why you tend to see higher debt loads on oil companies balance sheets compared to the software sector. But there are both companies with healthy levels of debt for the sector and those that are barely on life support. The companies who overextended themselves are now starting to face the music. Defaults are clearly on the horizon. That is why I created the Oil Company Death List, to focus in on those who over-borrowed. It contains publically traded companies listed on U.S. exchanges. These companies are directly involved in oil drilling and/or provide services to the sector. 3

High Debt Ratios Spell Toxicity Oil Company Death List To make the death list, a company needs to have a debt to EBITDA (earnings before interest, taxes, depreciation and amortization) ratio of over four. The higher the ratio, the more likely a company won t be able to service its debt. For example, if a company has a debt/ebitda ratio of four, it means that its current total debt is four times greater than the earnings it brought in over the last 12 months. In comparison, the oil and gas industry is averaging a ratio closer to two. Ratios above four should always sound off alarms. Companies above this range are less likely capable of handling their debt burdens. As a result, they are also less likely to be able to take on the additional debt required to grow the business. And that is assuming lenders are even willing to provide more cash. As an added barrier, companies on the death list also have debt to equity ratios above 100%. Higher debt/equity ratios signal that companies have been aggressive in financing their growth with debt. And if the costs of financing debt begin to outweigh the return a company earns on that debt, bankruptcy is right around the corner. Dynamic Duo Both leverage ratios combined tell us that previous earnings might have been inflated thanks to outside financing and that earnings coming in have a long way to go to service that debt. With oil trading down over 50% from its summer highs, it will be even harder for debtsaddled companies to boost income and meet debt obligations. Clearly you know what this means. Any capital you have invested (or might invest) in these 19 overleveraged companies is at extreme risk. So without further ado, I present you with the Oil Company Death List. Companies are listed in alphabetical order for your convenience so you can quickly check your portfolio for death candidates. Investors beware and take action quickly if you own any one of the positions below... this is truly a list of horror. Good investing, David Fessler Energy and Infrastructure Strategist, The Oxford Club 4

Oil Company Death List Caution: These 19 Oil & Gas Stocks Are Toxic to Your Portfolio 1. Antero Resources Corp. (NYSE: AR) Founded in 2002. Headquartered in Denver, Colorado. Debt/EBITDA: 4.99. Debt/Equity: 110.30%. Return on equity: -5.70%. Profit margins: -9.89%. $4.14 billion in debt with only $6.31 million in cash. Levered free cash flow over the last 12 months: -$2.35 billion. 2. Energy XXI Ltd. (Nasdaq: EXXI) Founded in 2005. Headquartered in Houston, Texas. Debt/EBITDA: 5.09. Debt/Equity: 211.08%. Negative earnings projected over the next five quarters. $3.84 billion in debt with only $119.5 million in cash. Stagnant cash flow growth projected for the foreseeable future. 3. EV Energy Partners L.P. (Nasdaq: EVEP) Founded in 2006. Headquartered in Houston, Texas.. Debt/EBITDA: 6.54. Debt/Equity: 115.40%. Return on equity: -2.35%. Profit margins: -6.57%. $1.15 billion in debt with only $11.2 million in cash. Levered free cash flow over the last 12 months: -$76.27 million. 4. EXCO Resources Inc. (NYSE: XCO) Founded in 1955. Headquartered in Dallas, Texas. Debt/EBITDA: 4.72. Debt/Equity: 362.83%. Return on equity: -23.7%. Profit margins: -11.73%. $1.55 billion in debt with only $47.95 million in cash. Negative sales growth in the last quarter. Negative EPS over the last 12 months. Suspended dividend in mid- December 2014. 5. Exterran Partners L.P. (Nasdaq: EXLP) Founded in 2006. Headquartered in Houston, Texas. Industry: Oil & Gas Equipment and Services Debt/EBITDA: 5.23. Debt/Equity: 173.54%. $1.23 billion in debt with only $275,000 in cash. Levered free cash flow over the last 12 months: -$113.01 million. 5

6. Goodrich Petroleum Corp. (NYSE: GDP) Founded in 1995. Headquartered in Houston, Texas. Debt/EBITDA: 29.44. Debt/Equity: 284.17%. Return on equity: -69.96%. Profit margins: -71.62%. $609.46 million in debt with only $2.21 million in cash. Levered free cash flow over the last 12 months: -$146.32 million. Negative sales growth in the last quarter. Negative EPS over the last 12 months. 7. Halcón Resources Corp. (NYSE: HK) Formerly known as RAM Energy Resources Inc. Changed its name to Halcón Resources Corporation in February 2012. Headquartered in Houston, Texas. Debt/EBITDA: 7.81. Debt/Equity: 216.99%. Return on equity: -20.31%. Profit margins: -29.48%. $3.53 billion in debt with only $94.69 million in cash. Levered free cash flow over the last 12 months: -$1.18 billion. Negative EPS over the last 12 months. 8. Hercules Offshore Inc. (Nasdaq: HERO) Founded in 2004. Headquartered in Houston, Texas. Debt/EBITDA: 7.53. Debt/Equity: 157.78%. Return on equity: -19.27%. Profit margins: -17.05%. $1.21 billion in debt with only $192.05 million in cash. Levered free cash flow over the last 12 months: -$136.4 million. Negative sales growth in the last quarter. Negative EPS over the last 12 months. 9. Legacy Reserves L.P. (Nasdaq: LGCY) Founded in 2005. Headquartered in Midland, Texas. Debt/EBITDA: 4.31. Debt/Equity: 168.67%. $1.2 billion in debt with only $3 million in cash. Levered free cash flow over the last 12 months: -$4.34 million. Negative EPS over the last 12 months. 10. Linn Energy (Nasdaq: LINE) Founded in 2003. Headquartered in Houston, Texas. Debt/EBITDA: 6.88. Debt/Equity: 249.59%. Return on equity: -24.12%. Profit margins: -30.30%. $12.31 billion in debt with only $59.16 million in cash. Levered free cash flow over the last 12 months: -$2.16 billion. Negative EPS over the last 12 months. Heavily cutting 2015 budget. 6

11. LRR Energy L.P. (NYSE: LRE) Founded in 2011. Headquartered in Houston, Texas. Debt/EBITDA: 24.62. Debt/Equity: 125.95%. Return on equity: -17.40%. Profit margins: -33.45%. $252.49 million in debt with only $10.75 million in cash. Negative sales growth in the last quarter. Negative EPS over the last 12 months. 12. Magnum Hunter Resources Crop. (NYSE: MHR) Founded in 1997. Headquartered in Houston, Texas. Debt/EBITDA: 52.29. Debt/Equity: 153.83%. Return on equity: -28.27%. Profit margins: -74.89%. $958.46 million in debt with only $50.90 million in cash. Levered free cash flow over the last 12 months: -$497.81 million. Negative EPS over the last 12 months. 13. Parsley Energy Inc. (NYSE: PE) Founded in 2008. Headquartered in Midland, Texas. Debt/EBITDA: 5.32. Debt/Equity: 398.21%. Return on equity: -1.12%. Profit margins: -6.01%. $557.41 million in debt with only $132.76 million in cash. Levered free cash flow over the last 12 months: -$933.77 million. Negative EPS over the last 12 months. 14. Rex Energy Corp. (Nasdaq: REXX) Founded in 2007. Headquartered in State College, Pennsylvania. Debt/EBITDA: 5.06. Debt/Equity: 115.09%. $692.45 million in debt with only $87.62 million in cash. Levered free cash flow over the last 12 months: -$433.98 million. Already made 43% cut to 2015 capital expenditure (CAPEX) plans. 15. Sanchez Energy Crop. (NYSE: SN) Founded in 2011. Headquartered in Houston, Texas. Debt/EBITDA: 4.09. Debt/Equity: 161.87%. $1.75 billion in debt with only $596.27 million in cash. Levered free cash flow over the last 12 months: -$1.15 billion. Slashed 2015 CAPEX budget by 60%. 16. TETRA Technologies (NYSE: TTI) Founded in 1981. Headquartered in The Woodlands, Texas. Industry: Oil & Gas Equipment and Services 7

Debt/EBITDA: 12.19. Debt/Equity: 101.07%. Return on equity: -3.81%. Profit margins: -3.07%. $940.17 million in debt with only $36.22 million in cash. Levered free cash flow over the last 12 months: -$55.14 million. Negative EPS over the last 12 months. 17. Vanguard Natural Resources (Nasdaq: VNR) Founded in 2006. Headquartered in Houston, Texas. Debt/EBITDA: 5.39. Debt/Equity: 116.19%. $1.92 billion in debt with only $43.96 million in cash. Levered free cash flow over the last 12 months: -$1.18 billion. 18. Vantage Drilling Company (NYSE: VTG) Founded in 2007. Headquartered in Houston, Texas. Debt/EBITDA: 6.16. Debt/Equity: 514.51%. $2.79 billion in debt with only $81.32 million in cash. Downgraded earnings estimates. 19. Warren Resources Inc. (Nasdaq: WRES) Founded in 1990. Headquartered in New York, New York. Debt/EBITDA: 5.50. Debt/Equity: 144.03%. $418.31 million in debt with only $1.78 million in cash. Levered free cash flow over the last 12 months: -$316.2 million. 8

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