Shares of SandRidge Energy Inc. have been suspended from trading with immediate effect by the New York Stock Exchange (NYSE) after market closed on Wednesday. The stock used to trade with the ticker symbol ''SD''. The exchange cited “abnormally low” prices of the stock as the reason. The company however has a right to get this decision reviewed by a Committee of the Board of Directors of NYSE Regulation. SandRidge Energy on Wednesday fell 2 cents akin to nearly 12%. The stock finally closed at 15 cents per share. As of date, the stock is traded Over the Counter with the ticker symbol “SDRXO”.

SandRidge Not Alone

A long list of cash-strapped oil exploration and production (E&P) companies were earlier warned by NYSE that they might face delisting for not keeping their stock price above $1.00.

Oil Rout Has Distressed Their Balance Sheets

With crude facing the heat on several fronts – mounting worries about demand in China, the absence of major production cuts by OPEC, the effects of booming shale supplies in North America and a stagnant European economy – the commodity’s price has dropped sharply from about $105 per barrel in Jul 2014 to around $33 now.

While all crude-focused stocks stand to lose from falling commodity prices, companies in the E&P sector are the worst placed, as they are able to extract less value for their products. Consequently, with oil prices collapsing to their lowest levels in years, upstream firms have seen their revenues, earnings and cash flows being hit hard. This, in turn, has unnerved investors and sent shares skidding to the penny-stock territory.

Listing Standards

Per NYSE rules, non-compliance occurs if a company’s average closing share price over a 30-day period is less than $1.00. The company then enters a red zone that could result in the suspension of trading and delisting after 6 months. However, it can avoid delisting if its stock price rises above $1 within a stipulated period of 6 months.

Tools at Companies Disposal to Avert Delisting

The best-case scenario is to hope for a revival in business that will prompt the market to recognize the company’s value and cause the share price to rise to at least $1.00.

Second, the company could go for a reverse stock split and ‘force’ the stock into compliance. For example, a 1-for-10 reverse split will reduce the company’s outstanding share count by 90%, while causing a tenfold increase in price.

Another (and the least likely) strategy might be to use its scarce cash resources and credit facility to buy back shares and increase the stock’s worth.

The Players in Danger

It shouldn’t be a surprise that with E&P companies’ share prices plummeting along with oil prices, around half a dozen or so producers are in danger of being delisted by the NYSE, with many more feeling the same threat. Some of the companies that were earlier warned of potential delisting include Goodrich Petroleum Corp. GDP, and Halcón Resources Corp. HK.

Are These Stocks Being Overly Punished?

The uncertainty in oil prices means that the future direction of the commodity’s movement is anybody's guess. However, fundamentals suggest that the odds are firmly stacked against a sustained rally. Therefore, while it's possible these stocks stage a turnaround from their embarrassingly low share prices and avoid the ignominy of delisting, the industry outlook does not promise any support toward this end.

Some better-ranked players in the energy sector include ReneSola Ltd. SOL and Boardwalk Pipeline Partners, LP BWP. Both of these stocks sports a Zacks Rank #1 (Strong Buy).

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