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Earnings estimates for the first quarter of 2016 are projected to show a decline of 10% in year-over-year growth. Take away the impact from decimated Energy sector profits and the picture is a little brighter at only minus 5% “growth.”

Second quarter estimates still retain some optimism because, after all, things may only get better. That quarter is projected to see negative 4.5% growth and only a drop of 1.1% ex-Energy.

In the video that accompanies this article, you can see some terrific charts of the evolution of these quarterly estimates over time. What becomes instantly apparent is that expectations are nearly always too rosy. For instance, at the end of December, Q1 2016 was expected to realize positive growth of +1.5% ex-Energy.

That’s what the Oil Bear has done to other sectors like manufacturing and banking. And that’s why I’ve been so cautious-to-bearish for the past 6 months because I knew that earnings estimates still needed to come down, even if analysts waited until the last possible moments to revise their fundamental outlooks.

Energy Sector Borrowing Base Redeterminations

Next month, oil and gas companies across the US are meeting with their bankers to review their existing loans and determine how much debt they can continue to carry for the next few months.

This “borrowing base redetermination” happens twice a year in April and October. Shasha Dai, writing for the Wall Street Journal’s Private Equity Beat last September, summed it up this way…

Oil and gas companies typically must borrow large amounts of capital to help finance drilling, exploration and other operations. Lenders often use a company’s proved reserves as collateral for these loans.

However, because commodity prices are volatile, banks typically reset the value of these reserves twice a year, usually in spring and fall. When determining the value of the reserves, banks use so-called price decks, or predictions of what oil or gas prices will be for the next few years.