Shares of U.S. exploration and production company Centennial Resource Development (NASDAQ: CDEV) rallied roughly 15.5% in the first half hour of trading on Dec. 9. Following close behind were Callon Petroleum (NYSE: CPE) and SM Energy (NYSE: SM) , up about 12% apiece. Bucking the rising tide, however, was Talos Energy (NYSE: TALO) , which plummeted as much as 19% when the trading day got underway. Here's what to make of this divergent action.
Centennial, Callon, and SM Energy are all tiny and highly leveraged energy companies . To put some numbers on that, their market caps range from around $500 million (Centennial) to a little shy of $700 million (SM Energy). Compared with industry giants like Chevron (NYSE: CVX) , which has a nearly $180 billion market cap , they are small-fry players. But that hasn't stopped them from taking on a material amount of leverage. Centennial Resource Development is at the low end of the trio with a financial debt-to-equity ratio of 6.5 times, and Callon is at the high end with a ratio close to 17 times. For reference, Chevron's financial debt-to-equity ratio is just 0.26 times. That's a huge difference.
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Why Centennial Resource Development, Callon Petroleum, and SM Energy Rallied Today, but Talos Energy Cratered