We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
4 Ways You Can Get Rich Off the Permian Basin's Oil Boom
Read MoreHide Full Article
Concho Resources Inc. said last week that it will buyRSP Permian Inc. for about $9.5 billion in the latest notable transaction involving the lucrative Permian Basin. The region has been gripped by a deal frenzy in the last few years, with a series of acquisitions, mergers and drilling rights involving both ‘Big Oil’ and smaller energy companies. It is worth noting that among last year's energy deals, more than 36% (valued at $24.3 billion) were Permian-focused, reflecting its status as the dominant domestic growth area for onshore oil production.
Agreed, the sentiment in the oil market has not been this good in years, with U.S. crude prices hitting a more than three-year high of around $66 recently – a spectacular recovery from below $30 in early 2016.
But regardless of the commodity’s price movement though, one oil-producing area that continues to attract investors is the low-cost Permian Basin spread over west Texas and New Mexico. According to some estimates, the region – that has been churning out crude continuously for nearly 100 years – has produced in excess of 30 billion barrels of oil since output began in 1921. Incredibly, despite that impressive output history, analysts maintain that its best days are yet to come. In fact, Permian Basin is touted as the key reason that U.S. crude production has now overtaken industry behemoth Saudi Arabia and is poised to surpass Russia shortly to become the global oil leader.
The Permian ‘Super’ Basin
A sedimentary basin lying underneath the western part of Texas and the south-eastern part of New Mexico, the Permian Basin Shale covers roughly 75,000 square miles, almost half the size of California.
Experts say that it’s cheaper to drill and complete oil wells in the Permian Basin, as compared to most other major fields. Moreover, there are certain parts of the shale play whose well-returns are the best in the U.S. With crude prices still down significantly from their 2014 levels, well returns have become a very important metric to gauge profitability.
Per S&P Global Platts – the leading independent commodities and energy data provider – the average wellhead break-even price for oil producers in the Permian shale play has come down to a staggering $33 per barrel. Permian’s attractive economics means that producers can make money and sustain growth there at the current, $60-a-barrel price.
The low operating cost stems from the region's extensive pipeline infrastructure, plentiful labor and supplies, and relatively warm winters that makes year-round work possible. Most other domestic share regions need far higher prices to support new developments and expansions.
Unsurprisingly then, the Permian has drawn the lion’s share of energy investment. Of late, more than a third of the total amount spent on all U.S. deals was spent on Permian land purchases and leases. No other major oil region in the country has come close to this activity.
Massive Reserve Potential Attracting Producers
According to business information provider IHS Markit, the Permian play is estimated to hold a staggering 60-70 billion barrels of recoverable crude oil - enough to feed all the domestic refineries for 12 years.
It is primarily because of the Permian shale that volume from U.S. oil fields has risen 24% since mid-2016 to more than 10.4 million barrels per day - the most since the EIA started maintaining weekly data in 1983.
Despite the slight uptick in service costs, a growing number of companies are devoting bulk of their investments into the Permian as they turn their attention to less-expensive projects that can deliver cash quickly in today’s ‘moderate oil’ environment. The recent Concho-RSP deal is likely to spur the “Permania” that has engulfed the U.S. oil industry and herald another consolidation wave in the Permian region.
Such is the popularity of this unconventional basin that oil supermajors like ExxonMobil (XOM - Free Report) and Chevron (CVX - Free Report) have made the region mainstays of their future production. While ExxonMobil doubled its Permian Basin resource to six billion oil-equivalent barrels last year in a series of transactions, Chevron has allocated a massive $3.3 billion as capital expenditure for this lucrative region in 2018.
Four Permian Basin Oil Stocks to Buy
Though a number of companies have built sizeable acreage positions in the Permian Basin, we have shortlisted four of them that might fetch you outstanding returns. Each of our picks boast of a Zacks Rank of #1 (Strong Buy) or #2 (Buy), which justifies a company’s strong fundamentals. You can see the complete list of today’s Zacks #1 Rank stocks here.
Concho Resources, a #1 Ranked stock, is our first pick. The impending RSP Permian acquisition will make the Midland, TX-based company one of the top energy producers in the lucrative play. The deal adds 92,000 acres of complementary holdings to Concho’s Permian portfolio, expanding the total Permian acreage of the company to 640,000 net acres. The combined entity is set to run 27 rigs in the region, marking one of the largest drilling programs in the Permian shale play.
Then we have EOG Resources, Inc. (EOG - Free Report) . This Zacks Rank #1 stock has significant interests in the Permian Basin. In 2016, the company scooped up privately held Yates Petroleum Corp for $2.5 billion to expand its holdings in the region. In the most recently reported quarter, EOG Resources’ total volume rose 13.4% year over year to 60.9 million barrels of oil equivalent and surpassed the Zacks Consensus Estimate of 60 MMBoe. This was primarily on account of higher production and improved well performance in the Permian Basin where it holds approximately 630,000 net acres.
Third on the list is Pioneer Natural Resources Company (PXD - Free Report) . An independent oil and gas exploration and production company based in Irving, TX, the Rank #2 stock’sgrowth continues to be focused on the Permian operations with more than 20,00 drilling locations across 750,000 gross acres. Its world-class assets in the region is likely to see year-over-year production growth of 19-24% in 2018. In fact, Pioneer Natural Resources plans to operate 20 horizontal rigs in the play this year.
Energen Corporation is another company we recommend. This Birmingham, AL-based Permian pure play boasts of acreage in some of the high-quality areas of the Basin in the Delaware and Midland. Carrying a Zacks Rank of 2, Energen’s top-tier inventory of more than 4,000 net locations supports net, undeveloped resource potential of 2.7 billion barrels of oil equivalent. Coupled with ever improving operating efficiencies, the company expects year-over-year production growth of 25% in 2018.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Image: Bigstock
4 Ways You Can Get Rich Off the Permian Basin's Oil Boom
Concho Resources Inc. said last week that it will buy RSP Permian Inc. for about $9.5 billion in the latest notable transaction involving the lucrative Permian Basin. The region has been gripped by a deal frenzy in the last few years, with a series of acquisitions, mergers and drilling rights involving both ‘Big Oil’ and smaller energy companies. It is worth noting that among last year's energy deals, more than 36% (valued at $24.3 billion) were Permian-focused, reflecting its status as the dominant domestic growth area for onshore oil production.
Agreed, the sentiment in the oil market has not been this good in years, with U.S. crude prices hitting a more than three-year high of around $66 recently – a spectacular recovery from below $30 in early 2016.
But regardless of the commodity’s price movement though, one oil-producing area that continues to attract investors is the low-cost Permian Basin spread over west Texas and New Mexico. According to some estimates, the region – that has been churning out crude continuously for nearly 100 years – has produced in excess of 30 billion barrels of oil since output began in 1921. Incredibly, despite that impressive output history, analysts maintain that its best days are yet to come. In fact, Permian Basin is touted as the key reason that U.S. crude production has now overtaken industry behemoth Saudi Arabia and is poised to surpass Russia shortly to become the global oil leader.
The Permian ‘Super’ Basin
A sedimentary basin lying underneath the western part of Texas and the south-eastern part of New Mexico, the Permian Basin Shale covers roughly 75,000 square miles, almost half the size of California.
Experts say that it’s cheaper to drill and complete oil wells in the Permian Basin, as compared to most other major fields. Moreover, there are certain parts of the shale play whose well-returns are the best in the U.S. With crude prices still down significantly from their 2014 levels, well returns have become a very important metric to gauge profitability.
Per S&P Global Platts – the leading independent commodities and energy data provider – the average wellhead break-even price for oil producers in the Permian shale play has come down to a staggering $33 per barrel. Permian’s attractive economics means that producers can make money and sustain growth there at the current, $60-a-barrel price.
The low operating cost stems from the region's extensive pipeline infrastructure, plentiful labor and supplies, and relatively warm winters that makes year-round work possible. Most other domestic share regions need far higher prices to support new developments and expansions.
Unsurprisingly then, the Permian has drawn the lion’s share of energy investment. Of late, more than a third of the total amount spent on all U.S. deals was spent on Permian land purchases and leases. No other major oil region in the country has come close to this activity.
Massive Reserve Potential Attracting Producers
According to business information provider IHS Markit, the Permian play is estimated to hold a staggering 60-70 billion barrels of recoverable crude oil - enough to feed all the domestic refineries for 12 years.
It is primarily because of the Permian shale that volume from U.S. oil fields has risen 24% since mid-2016 to more than 10.4 million barrels per day - the most since the EIA started maintaining weekly data in 1983.
Despite the slight uptick in service costs, a growing number of companies are devoting bulk of their investments into the Permian as they turn their attention to less-expensive projects that can deliver cash quickly in today’s ‘moderate oil’ environment. The recent Concho-RSP deal is likely to spur the “Permania” that has engulfed the U.S. oil industry and herald another consolidation wave in the Permian region.
Such is the popularity of this unconventional basin that oil supermajors like ExxonMobil (XOM - Free Report) and Chevron (CVX - Free Report) have made the region mainstays of their future production. While ExxonMobil doubled its Permian Basin resource to six billion oil-equivalent barrels last year in a series of transactions, Chevron has allocated a massive $3.3 billion as capital expenditure for this lucrative region in 2018.
Four Permian Basin Oil Stocks to Buy
Though a number of companies have built sizeable acreage positions in the Permian Basin, we have shortlisted four of them that might fetch you outstanding returns. Each of our picks boast of a Zacks Rank of #1 (Strong Buy) or #2 (Buy), which justifies a company’s strong fundamentals. You can see the complete list of today’s Zacks #1 Rank stocks here.
Concho Resources, a #1 Ranked stock, is our first pick. The impending RSP Permian acquisition will make the Midland, TX-based company one of the top energy producers in the lucrative play. The deal adds 92,000 acres of complementary holdings to Concho’s Permian portfolio, expanding the total Permian acreage of the company to 640,000 net acres. The combined entity is set to run 27 rigs in the region, marking one of the largest drilling programs in the Permian shale play.
Then we have EOG Resources, Inc. (EOG - Free Report) . This Zacks Rank #1 stock has significant interests in the Permian Basin. In 2016, the company scooped up privately held Yates Petroleum Corp for $2.5 billion to expand its holdings in the region. In the most recently reported quarter, EOG Resources’ total volume rose 13.4% year over year to 60.9 million barrels of oil equivalent and surpassed the Zacks Consensus Estimate of 60 MMBoe. This was primarily on account of higher production and improved well performance in the Permian Basin where it holds approximately 630,000 net acres.
Third on the list is Pioneer Natural Resources Company (PXD - Free Report) . An independent oil and gas exploration and production company based in Irving, TX, the Rank #2 stock’sgrowth continues to be focused on the Permian operations with more than 20,00 drilling locations across 750,000 gross acres. Its world-class assets in the region is likely to see year-over-year production growth of 19-24% in 2018. In fact, Pioneer Natural Resources plans to operate 20 horizontal rigs in the play this year.
Energen Corporation is another company we recommend. This Birmingham, AL-based Permian pure play boasts of acreage in some of the high-quality areas of the Basin in the Delaware and Midland. Carrying a Zacks Rank of 2, Energen’s top-tier inventory of more than 4,000 net locations supports net, undeveloped resource potential of 2.7 billion barrels of oil equivalent. Coupled with ever improving operating efficiencies, the company expects year-over-year production growth of 25% in 2018.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Click for details >>