Why Centennial Resource Development, Callon Petroleum, and SM Energy Rallied Today, but Talos Energy Cratered

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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