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Permian Explorers in the Spotlight Now: Bet on 3 Stocks

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So far this year, West Texas Intermediate oil price has improved more than 60%, thanks to the rolling out of coronavirus vaccines at a massive scale. Exploration and production businesses are thus again witnessing big gains on the back of a healthy crude price trajectory, with the energy sector gradually springing back to life.

Favorable Oil Price

West Texas Intermediate crude price is trading above $77 per barrel, highlighting a substantial improvement from the negative territory hit last April. Although a growing number of indications signal more oil supply, thereby pushing commodity price down, the crude pricing environment will remain significantly healthier compared to last year.

This is because coronavirus vaccines are rolling out at a healthy pace, eventually leading economies out of the pandemic-induced downturn. With more people socializing and going to work, demand for fuel will improve further, thereby backing crude price.

US Shale Oil Production to Rise

In December, total oil production from shale resources in the United States will likely increase by 85,000 barrels per day to 8,316 thousand barrels per day (MBbl/D), per the U.S. Energy Information Administration (EIA). The shale resources comprise Anadarko, Appalachia, Bakken, Eagle Ford, Haynesville, Niobrara and Permian.

Of all the resources, 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 67,000 barrels per day to 4,953 MBbls/D in December.

Time to Bet on Permian Explorers

It has been crystal clear that a favorable crude pricing scenario is backing higher production volumes. This is reflected in higher drilling activities, especially in the Permian Basin. In its weekly release, Baker Hughes Company (BKR) reported that the basin's tally for oil drilling rigs increased in 12 of the past 14 weeks.

The rotary rig count, issued by Baker Hughes, usually gets published in major newspapers and trade publications. Baker Hughes’ data, issued at the end of every week since 1944, helps energy service providers gauge the overall business environment of the oil and gas industry.

Thus, improving production in the Permian amid healthy oil price has raised the incentive for adding stocks of companies operating in the most prolific basin.

3 Stocks to Buy Right Away

Since selecting the right companies with a footprint in the Permian from the stock universe is not an easy task, we are employing our proprietary Stock Screener to zero down on three prospective stocks. All the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Diamondback Energy, Inc. (FANG - Free Report) is a leading pure-play Permian operator, having a strong footprint in 413,000 net acres in the prolific Midland and Delaware sub-basins. Diamondback Energy raised its 2021 average daily production guidance to 370-372 thousand barrel of oil equivalent per day (MBoE/D) from the prior-guided range of 363-370 MBoE/D. Thus, FANG will generate significant cashflows from higher production and increased crude price.

The Zacks Consensus Estimate for Diamondback Energy’s earnings per share for 2021 has been revised upward in the past 30 days. So far this year, FANG has gained 121.6%, outpacing the industry’s 111.8% increase.

EOG Resources, Inc. (EOG - Free Report) is among the leading upstream energy players with operations focused in prolific plays that include Delaware, a sub-basin of Permian. In Delaware, EOG Resources has significant undrilled premium locations, brightening the production outlook. Hence, healthy oil price and higher production will aid EOG’s bottom line.

The Zacks Consensus Estimate for EOG Resources’ earnings per share for 2021 has been revised upward in the past 30 days to $8.61, suggesting a year-over-year improvement of 489.7%.

PDC Energy, Inc. (PDCE - Free Report) is focusing on significant value creation with a strong presence in the Delaware basin – a sub-basin of Permian – where the company’s operations spread across roughly 25,000 net acres. PDC Energy’s operating efficiencies in the basin improved drastically, with the company finishing its completion activities for 2021 in the June quarter this year.

So far this year, PDC Energy has gained 169.9% since the company is likely to increase oil production in the current favorable business scenario. In the December quarter, PDCE projects oil production in the range of 66,000 to 69,000 Bbls/D. The top end of the range is higher than 66,500 Bbls/D production recorded in the third quarter of this year.


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EOG Resources, Inc. (EOG) - free report >>

PDC Energy, Inc. (PDCE) - free report >>

Diamondback Energy, Inc. (FANG) - free report >>