3 Permian Explorers to Keep an Eye on Healthy Oil Prices
Oil price has increased more than 8% since a slump early last month, encouraging explorers and producers to gather on crude patches. The count of rigs will likely keep increasing since oil price is expected to remain healthy. Thus, with rising drilling activities, production may increase, aiding upstream energy players' businesses.
Oil Price Still High
West Texas Intermediate crude price is almost approaching $80 per barrel, which is highly favorable for exploration and production activities. Also, in its short-term energy outlook, the U.S. Energy Information Administration (“EIA”) projected the average spot price of West Texas Intermediate crude at $77.18 per barrel this year, signifying an extremely favorable business environment for upstream players.
Shale Oil Production to Rise
In February, total oil production from shale resources in the United States will likely increase by 76,000 barrels per day to 9,375 thousand barrels per day (MBbl/D), per EIA. The shale resources comprise Anadarko, Appalachia, Bakken, Eagle Ford, Haynesville, Niobrara and Permian.
Of all the resources, the Permian will witness the highest increase in daily oil production this month, according to the EIA’s drilling productivity report. In the Permian, the EIA projects oil production to rise by 30,000 barrels per day to 5,635 MBbls/D in February.
Permian Explorers in the Spotlight
Clearly, a favorable crude pricing scenario is backing higher production volumes. Improving Permian production amid healthy oil prices has raised the incentive to keep an eye on stocks of companies operating in the most prolific basin.
3 Stocks to Gain
Diamondback Energy, Inc. FANG is a leading pure-play Permian operator. The firm, carrying a Zacks Rank #3 (Hold), has expanded its footprint in the Midland basin since it acquired all leasehold interest and associated properties of Lario Permian, LLC – which is a wholly owned affiliate of Lario Oil & Gas Company. FANG also has an investment-grade balance sheet.
Pioneer Natural Resources Company PXD has a strong presence in the low-cost oil-rich Midland basin — a sub-basin of the broader Permian. The #3 Ranked upstream energy player has a massive inventory of premium wells that will likely generate significant returns for the company.
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Pioneer Natural is focused on returning capital to shareholders. This includes a substantial variable dividend along with a strong base dividend. PXD is also employing opportunistic share repurchases to reward shareholders.
Pioneer Natural has considerably lower exposure to debt capital than the composite stocks belonging to the industry. This reflects PXD’s strong balance sheet on which the firm can rely to sail through the volatile energy businesses.
Solid oil prices are a boon for Matador Resources Company’s MTDR upstream operations. This is because MTDR has a strong presence in oil-rich core acres of the Wolfcamp and Bone Spring plays in the Delaware Basin. Favorable oil price is likely to aid it in increasing production volumes. Last month, Matador agreed to acquire Advance Energy Partners Holdings, LLC. This comprises several oil and natural gas-producing properties and undeveloped acreage. Once the deal closes, MTDR expects the acquisition to be accretive to important valuation and financial metrics.
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