The rout in energy stocks reminds Tim Rochford of something else he’s seen in Texas.
“What happened is almost like a herd of cattle, one cow turns left, all the cows follow it and it’s a stampede,” said the 68-year-old co-founder of Midland-based Ring Energy Inc., one of 118 industry executives who bought shares of their own companies in the last month amid the worst losses since 2008.
“This is an absolute fire sale,” he said. “It’s an overreaction and the result is it’s oversold.”
With valuations at a decade low, oil executives such as Rochford and Chesapeake Energy Corp.’s Archie Dunham are driving the biggest wave of insider buying since 2012, data compiled by the Washington Service and Bloomberg show. They’re snapping up stocks after more than $300 billion was erased from share values as crude slipped below $70 for the first time since 2010.
Rochford and two other board members, Stanley McCabe and David Fowler, bought a total of more than 30,000 Ring shares over the past month, regulatory filings show. While the stock has lost 55 percent from its June peak, Rochford said his company can stay profitable even should oil slip to $50. Crude prices last settled at $65.84 a barrel in New York, down from around $105 five months ago.
Equities in the industry are being ejected from the U.S. bull market, falling 9.2 percent this year, while the Standard & Poor’s 500 Index climbed 12 percent. Oil is down 33 percent amid concern over a glut of supply.
The S&P 500 fell 0.1 percent at 10 a.m. in New York today while energy shares dropped 1.8 percent as crude continued its selloff.
The Organization of Petroleum Exporting Countries last month kept its production ceiling unchanged, underscoring the price war in the crude market and challenge to U.S. shale drillers that have lifted output to a three-decade high.
Sinking oil is deepening concern that companies such as Halcon Resources Corp. and Goodrich Petroleum Corp. will struggle to fund obligations as revenue slumps. Veterans like Dunham said they’ve seen it all before.
“Most of these execs that are buying have been in the industry as long as I have, so they know how supply and demand works and they’re buying quality stocks,” Dunham, the chairman of Chesapeake Energy who is turning 76 this month, said by phone. He recently purchased 500,000 shares of the Oklahoma City-based shale producer, his biggest since joining the company’s board in 2012, according to regulatory filings compiled by InsiderInsights.com.
“I’m very optimistic medium and long-term that the industry will persevere through another one of these cycles,” said Dunham, the former chairman of Houston-based ConocoPhillips. “It’s just a matter of time to get supply balanced with demand.”
The number of insiders buying has increased 64 percent from a year ago and more than doubled from the average during the first 10 months of 2014, according to data compiled by Bloomberg and Bethesda, Maryland-based Washington Service.
Buying is picking up after share losses worsened. The S&P 500 Energy Index tumbled 8.9 percent in November, falling for a third straight month and extending the decline from its June peak to 21 percent.
Even after a bounce last week, the industry gauge is still the only group in the S&P 500 to retreat in 2014. The measure is trailing the benchmark gauge by 21 percentage points, the most since 1998. At 1.76 times book value, the stocks trade at a 37 percent discount to the market, the biggest since 2000.
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