Citigroup Goes All Medieval On the Energy Sector, Takes Quarterstave and Broadsword to Estimates

A little ex post wouldn't you say?
From ZeroHedge:

The price of crude has collapsed by 50% in a few months (and 40% since the end of QE3), which can only mean one thing: the Wall Street penguin brigade is out in full force with its spate of energy sector downgrades, none of which is more bombastic than that of Citigroup's Robert Morris who in 118 pages just crucified the entire energy space, lowering his target price for every single company in his coverage universe, and declaring that "Goldilocks has left the building."

The first question: what does it mean for the CapEx component of Durable Goods spending and core CapEx? Nothing good:

2015 Projected Budgets Now Down ~33%... – Although only seven out of 27 companies in our E&P coverage group have issued 2015 guidance (and we believe some will have to be revised), we now project total capital spending will be down ~33% (E&D down 26%), in aggregate, year over year in 2015

Even as companies rush to outproduce each other:

“Organic” Liquids Production Expected To Increase ~16% – Based on our revised cash flow and budget projections, total production for our E&P coverage group is now projected to increase ~9% this year (~11% “organic” adjusted for acquisitions and divestitures) versus ~14% previously with total reported oil/liquids production now projected to be up ~12% (~16% organic).

Leading to dumping and liquidations, and a collapse in EPS:

Estimates Drop Significantly… – On average for our E&P coverage group, 2015 EPS/CFPS estimates drop by ~57%/21% (and are now 50%/22% below Consensus) and for 2016 decline ~54%/23% (58%/22% below Consensus).

The punchline:

“Goldilocks” Era Comes To An End… – Over the past two years, the E&P sector has experienced unprecedented returns with strong commodity prices and ongoing efficiency gains throughout core North America shale and resource plays and no material increase in oil field services costs. However, this is a cyclical industry and the near-term outlook has turned quite dire. We are downgrading APC, CHK, COG, CXO, EPE, RRC, NBL, NFX, PXD and WLL to Neutral from Buy, and MRO, OAS and XEC to Sell from Neutral.

The details:

“Goldilocks” Era Comes To An End… – Just over one year ago (see our 12/12/13 2014 E&P Sector Outlook note), we projected that the “Goldilocks” era for the E&P sector was likely to persist through much of 2014 with ongoing drilling efficiency gains throughout key North American shale and resource plays and with no expectation for any material increase in oil field services costs. However, we did state that a drop in oil prices could yield some headwinds at times although oil prices rose through the first half of the year. We have covered the E&P sector for 20 years and during the first 18 years we emphasized that this was a margin business with E&P companies being ‘price takers’ – both of commodity prices and ultimately of oil field services costs. However, for most of 2013 and through the first threequarters of 2014, the E&P sector experienced margin expansion with an overbuilt oil field services sector unable to take away the ‘economic rent’ resulting from sharp efficiency gains in horizontal drilling and relatively strong commodity prices. Thus, E&P companies repeatedly stated that they were getting 100%, or better, rates of return from drilling wells in key shale plays such as the Eagle Ford, Bakken, Marcellus, Utica and Permian Basin....

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