The tide seems to have turned in favor of U.S. exploration and production companies as crude has started gaining momentum after OPEC and non-OPEC players joined forces to curb oil production in wake of a supply glut. The step was no doubt the most important one this year to recover oil prices.
We note that U.S energy firms now have a huge opportunity to outpace OPEC and Russia in the bid to raise production. We believe that U.S. shale companies are likely to keep producing more oil in the coming days at the expense of OPEC and sell the commodity at much higher prices to lower their debt burden.
In fact, U.S. players have already started gathering in the oil plays. Last week, U.S. crude plays have witnessed an increase in rig count from the prior week – marking the sixth consecutive weekly rig count increase.
Oil Producers Agree to Curb Production
Non-OPEC players have teamed up with OPEC to curb oil production as the market is flooded with plentiful supply of crude. This is undoubtedly the most important step taken by energy players this year to restore oil prices amid the oversupplied commodity market.
Recently, OPEC reached a historic accord to lower its production by 1.2 million barrels per day (MMB/D) to 32.5 MMB/D – effective Jan 1, 2017 – from 33.6 MMB/D. Notably, the production cut is much more than what was projected by most analysts. It is to be noted that Saudi Arabia – the most influential member of OPEC – agreed to shoulder most of the output cut.
Now that non-OPEC players too have agreed to curb production, the market will witness the reduction of an additional 558,000 barrels per day of crude alongside OPEC’s earlier proposal of 1.2 MMB/D output cut.
Of the declared amount of non-OPEC cut, Russia alone will reduce output by 300,000 barrels per day. The country has pledged the bulk amount as it produces much more oil than other countries. We note that 10 other players including Oman, Azerbaijan and Sudan have also decided to lower output. Most importantly, Saudi Arabia surprised analysts through an indication of further production cut after the accord with non-OPEC producers.
More Rigs on Oil Producer’s Decision
The present state of affairs is being considered by many as an opportune moment for U.S. shale players to outpace OPEC in the race for production share. With the cartel’s output cut, the U.S. energy companies are well poised to take advantage of higher oil prices in the coming days by producing more oil.
In fact, U.S. energy players might go on adding more rigs in the oil patch after the oil producers announced their decision to curb output. In its weekly release, Houston, TX-based oilfield services company Baker Hughes Inc. reported higher U.S. rig count (number of rigs searching for oil and gas in the country) than before.
Rigs engaged in exploration and production in the U.S. totaled 653 in the week ended Dec 23, 2016. This was up by 16 from the previous week. In details, the report shows that oil rigs in the U.S increased by 13, while the natural gas rig count rose by 3.
U.S. Energy Players to Gain
It is a well-documented fact that the state Oklahoma has witnessed the highest rise in rig count – after gaining six rigs – over the last week than any other major states. Texas, on the other hand, has got four more rigs.
The developments so far show that U.S. shale players have already started to gather at the oil patches to capitalize on the situation as oil is expected to improve further. With increase in crude prices, U.S. energy companies will be able to sell the commodity at much higher prices and will likely garner more cashflows for shareholders.
Some U.S. exploration and production firms that stand to gain from the aforesaid developments are Newfield Exploration Company , Abraxas Petroleum Corporation (AXAS - Free Report) , Antero Resources Corporation (AR - Free Report) , Matador Resources Company (MTDR - Free Report) and Noble Energy Inc. (NBL - Free Report) . Newfield sports a Zacks Rank #1 (Strong Buy), while Abraxas Petroleum, Antero Resources and Matador carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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