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4 Permian Drillers to Track on Possible Oil Spurt

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The probable crude recovery in 2019 could ramp up drilling and fracking activities in the Permian Basin by several folds. This optimism is based on the construction of a host of fresh pipelines which will boost the prolific play’s takeaway capabilities.

It is thus almost certain that the producers will be able to carry significantly higher volumes of Permian oil to the Gulf Coast and export terminals through 2019. This in turn should bolster the nation’s oil production and export volumes to new highs.

Oil Could Recover in 2019

The year 2018 saw West Texas Intermediate (WTI) crude trade between more than $75 a barrel to below $45, reflecting an extremely wide range. From January to October, WTI crude traded at a monthly average price of more than $60 a barrel, per data of U.S. Energy Information Administration (EIA). However, oil witnessed a free fall in the last two months of 2018 with the commodity at around $45.

Low crude is mostly a threat to upstream energy firms. However, the commodity pricing scenario could turn around as many analysts are predicting a drastic recovery in oil by first-half 2019.

WTI crude is expected to remain weak until next May when the supply of Iranian oil in the global economy will fall drastically. The radical decline will be resulting from the expiry of U.S. sanction waivers, which allow several countries to continue to import oil from Iran till mid-2019. Since, Iran was the fourth largest oil producer in 2017, the loss of massive oil volumes from the global economy will be hard to replace by other producers, in turn aiding oil prices. According to the median of projections in Bloomberg’s survey of 24 oil analysts, WTI crude will average $61.13 a barrel in 2019.

Permian Activities to Pick Up

The commodity price recovery will certainly boost activities in the Permian Basin — holding more than 20 of the best 100 crude-producing fields in the domestic market, per a notification by Chevron Corporation (CVX - Free Report) .  Importantly, with the ongoing pipeline bottleneck problem expected to be resolved partly by second-half 2019, the Basin’s operations will increase many folds. 

Moreover, with a breakeven oil price of lower than $30 a barrel — per Pioneer Natural Resources Company (PXD - Free Report) — Permian operations will likely be the most profitable among all shale plays in the United States.

Hence, with the nation’s lowest breakeven oil play and improvement in pipeline takeaway capacity later this year, 2019 is expected to turn out as a banner year for Permian drillers.  

Delaware or Midland Drillers in the Spotlight

By Permian, we mainly mean its sub-basin Midland, which is broadly known and mostly drilled. Delaware, the other sub-basin, has far higher oil and gas resource bases, claimed U.S. Geological Survey (USGS).

Hence, drillers operating in the broader Permian are likely to post strong year-over-year earnings growth in 2019.

We would want investors to keep a track of the following Delaware & Midland drillers or continue to hold them if they are already part of their portfolio. Each of the stocks carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Headquartered in Irving, TX, Pioneer Natural Resources Company has roughly 750,000 gross acres in the Midland with more than 20,000 drilling locations. Strong acreage holdings in the prolific oil resource will likely help the company post earnings growth of 39.7% through 2019.

Diamondback Energy, Inc. (FANG - Free Report) , headquartered in Midland, TX, has significantly expanded its total net acreage position in the broader Permian. The company’s prime focus is on Delaware’s Wolfcamp and Bone Spring formations.

Investors should know that the company’s 7,200 net horizontal drilling areas, spreading across the Midland and Delaware basins, will likely boost production. We expect the stock to see earnings growth of 32.5% through 2019.

Headquartered in Midland, TX, Concho Resources Inc. (CXO - Free Report) is employing advanced drilling techniques for developing its holding acres in the Midland region. The company also has presence in southern Delaware basin resources.  

The acreage holdings reflect strong production outlook with earnings growth of 15.8% through 2019.

Parsley Energy, Inc. (PE - Free Report) , headquartered in Austin, TX, has strong presence in both the Midland andsouthern Delaware areas. Through 2019, the stock will likely post earnings growth of 11.1%. 

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