Since the beginning of this year, the oil pricing environment has favored exploration and production activities. Upstream players will likely keep increasing their operations in prolific shale resources, in turn raising their count for drilling rigs. Thus, with increasing drilling activities, production will possibly increase, aiding businesses for explorers and producers. Amid such a scenario, stocks that could gain are Diamondback Energy, Inc. FANG, Pioneer Natural Resources Company PXD and Matador Resources Company MTDR.
Oil Price Still High
West Texas Intermediate crude price is trading at more than $70 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 $73.62 per barrel this year, still a handsome price for upstream operations.
Shale Oil Production to Rise
In June, total oil production from shale resources in the United States will likely increase by 41,000 barrels per day to 9,332 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 next month, according to the EIA’s drilling productivity report. In the Permian, the EIA projects oil production to rise by 15,000 barrels per day to 5,707 MBbls/D in June.
Permian Explorers in the Spotlight
It has been crystal clear that 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 companies operating in the most prolific basin.
3 Stocks to Gain
Diamondback Energy is a leading pure-play Permian operator. The firm, carrying a Zacks Rank #3 (Hold), expanded its footprint in the Midland basin since it acquired all leasehold interest and associated properties of Lario Permian, LLC — a wholly-owned affiliate of Lario Oil & Gas Company. FANG also has an investment-grade balance sheet.
Pioneer Natural 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. You can see the complete list of today’s Zacks #1 Rank stocks here.
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 its 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’ upstream operations. This is because the company 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. For 2023, Matador, with a Zacks Rank of 3, reiterated its oil equivalent production guidance of 44.35-46.25 million barrels. The metric suggests an improvement from 38.5 million oil-equivalent barrels reported in 2022. MTDR is now expecting production at the high end of the projected band.
On another positive note, Matador plans to turn to sales a net of 97.5 wells this year, including operated and non-operated wells. The prime priorities that the firm has set for this year are lowering debt levels, delivering free cashflows and maintaining or increasing dividends.
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