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4 Top-Tier Permian Producers to Watch as Oil Approaches $50

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Oil is now on the upswing, with WTI pushing ahead toward $50 — a coveted price that most companies believe might be enough to drill profitably. In particular, the commodity’s revival from the coronavirus-induced depths of April is expected to bring some previously shut-in production back online, especially from the U.S. shale operators. As output from the unconventional plays look set for an uptick, all eyes will be on the Permian Basin — America’s hottest and lowest-cost shale region, and by far the primary driver of crude production in the United States.

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. Permian’s attractive economics means that producers can make money and sustain growth there at the current price. According to estimates, the average breakeven prices in most of the Permian well locations is below $50 per barrel — the lowest in the United States.

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. As per EIA data, the Permian Basin’s oil producers likely churned out more than 4.3 million barrels per day in November — more than half the production from America’s seven most significant shale basins and almost 40% of the total.

Estimated to hold a staggering 60-70 billion barrels of recoverable crude, volumes from this low-cost, premier unconventional play will remain healthy for many years to come, reflecting its status as the dominant domestic growth area for onshore oil production.

4 Stocks to Focus On

With production set for a rebound in the Permian play and investors’ strong appetite for stocks focused in that region, we present four companies, each carrying Zacks Rank #3 (Hold), that investors should watch out for.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Midland, TX-headquartered Diamondback Energy (FANG - Free Report) is an independent oil and gas exploration & production company, with its primary focus on the Permian Basin, where it has around 350,000 net acres in the Delaware and Midland regions with more than 8,000 drilling locations and production of 287,000 barrels of oil equivalent per day.

Then we have Cimarex Energy (XEC - Free Report) . This company has significant interests in the Permian Basin where it owns 238,000 net acres. Last year, the company’s output from Permian grew more than 50%. During the most recent quarter, Cimarex Energy reported production of 180,300 barrels of oil equivalent per day from the country’s premier shale play.

Third on the list is Apache Corporation (APA - Free Report) . One of the largest oil producers in Permian, Apache has over 1.8 million net acres in the region. While the company has kept its Permian drilling activity at minimal following oil’s horrid descent earlier in the year, things are expected to look up once the commodity reaches $50 a barrel. In 2019, Apache produced 254,293 barrels of oil equivalent per day from the Permian Basin.

Finally, there is QEP Resources (QEP - Free Report) whose increased focus on the quality acreage of the prolific Permian Basin stands it in good stead. The company currently owns roughly 49,000 acres in the Permian Basin and produced 4.4 million barrels in the third quarter, contributing 62% to its total output.

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