Billions Lost from Energy Shares, Investors Exit

$33 billion wiped off sector's market value on Friday; Fund managers call it a "capitulation."

A fresh slide in the price of crude wiped tens of billions of dollars off oil companies' market value on Friday and signalled an end to the sector's safe-haven status, as fears mounted over future profits and dividend payouts.

Fund managers described the last 24 hours of trading as "capitulation" - the point at which a sell-off becomes widespread and panic-driven - as investors reassessed whether the sector could keep gushing cash after OPEC's decision not to cut oil production to fight a supply glut.

"Oil stocks are currently in the final phase of capitulation," said UniCredit strategist Christian Stocker.

Oil prices have been sliding for months, but the pain has mostly been felt by oil-services suppliers rather than majors like Royal Dutch Shell (RYDAF) or Total. Investors maintained some faith in them based on their record of paying reliable dividends.

That faith appeared to erode on Friday, when $33 billion in market capitalisation was wiped off the sector in Europe. Norway's Statoil (STO) fell 8.2 percent, BP 3.7 percent and Shell 3.3 percent. The STOXX 600 Europe oil and gas sector fell to its lowest since mid-October.

Overall, the sell-off since Thursday amounts to around $67 billion in lost market value, Reuters estimates. That compares with a total dividend payout from the sector of $41.6 billion in the second quarter of 2014, according to data from Henderson Global Investors.

"Many investors in the oil-and-gas exploration industry were there for the promise of dividends," said Yannick Naud, portfolio manager at Sturgeon Capital. "Today, with the oil price so low, many oil companies will have difficulty protecting their dividends."

To be sure, share prices have already cratered in parts of the sector, and some are buying in the belief the declines are overdone. "We don't expect oil prices to fall much further from these levels," said Luca Paolini, chief strategist at Pictet.

But others warned they had been fooled before by false dawns and this time the pessimism would take longer to end.

"The whole sector ... could be at risk of having to make a choice between keeping a high dividend payout ratio or (spending on) investing," said Antoine Porcheret, a derivatives strategist at BNP Paribas. "These stocks can go lower."
 

By Lionel Laurent