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These 3 Bakken Stocks are Well Poised to Gain: Here's Why

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China’s improving oil demand and the weak U.S. dollar are supporting oil price. The chief executive officer of Kuwait Petroleum Corporation expects the demand from China for oil to keep improving in the second half of this year. Healthy crude pricing will thus make exploration and production activities profitable in the U.S. shale resources like Bakken. Companies that are thus well poised to gain are Hess Corporation (HES - Free Report) , Marathon Oil Corporation (MRO - Free Report) and ConocoPhillips (COP - Free Report) .

Oil Price Will Remain Handsome

Beth McDonald, executive vice president of Pioneer Natural, said at the RBN Energy crude export conference in Houston that amid limited supply growth, demand for crude across the globe continues to rise. This will lead oil price to be more handsome later this year.

Higher labor and material expenses are hurting profit margins, thereby limiting spending by upstream players for exploration and production activities. Also, upstream players mainly focus on stockholder returns than boosting output since investors ask companies to return more cash. These are the prime factors justifying limitations in supply growth as upstream companies will continue to focus on capital discipline, despite the recent decision by Saudi Arabia, the top producer of the OPEC cartel, to cut another 1 million barrels per day production from July.

McDonald believes that over the next three to five years, crude will trade between $70 and $100 per barrel. At present, West Texas Intermediate crude price is trading higher than the $70 per barrel mark.

Modest Rise in Shale Oil Production

In July, total oil production from shale resources in the United States will likely increase by 8,000 barrels per day to 9,375 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, the Bakken will witness the highest increase in daily oil production next month, according to the EIA’s drilling productivity report. In Bakken, the EIA projects oil production to rise by 7,000 barrels per day to 1,214 MBbls/D in July.

Bakken Explorers in the Spotlight

It is clear that a favorable crude pricing scenario is backing modestly higher production volumes. Improving Bakken production amid healthy oil prices has raised the incentive to keep an eye on stocks of companies operating in the prolific basin. We have zeroed in on three stocks that are well poised to gain. All the stocks currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

3 Stocks to Gain

In the Bakken shale play, Hess Corporation has an industry-leading acreage position. With the employment of Lean manufacturing techniques, Hess’ has reduced its well operating costs significantly, while making those wells considerably more productive. While operating in the Bakken shale play, HES expects to maximize cashflows.

Marathon Oil Corporation has a clear focus on operating in the prolific oil-rich shale plays in the United States, where the cost of operations is significantly low. Bakken is one of the key plays, where Marathon Oil has roughly 240,000 net acres. In Bakken, MRO plans to bring 70 to 80 wells to sales in 2023.

ConocoPhillips’ major business unit is Lower 48, representing the company’s operations in key shale plays in the United States. Those low GHG-intensity assets, where operating costs are low, have huge upside potential. Bakken is among the assets in Lower 48, where ConocoPhillips currently has prime focus.


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ConocoPhillips (COP) - free report >>

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