The fate of exploration and production companies is primarily dependent on oil prices. The handsome commodity pricing scenario is aiding upstream firms to increase volumes. This will possibly motivate explorers and producers to add more rigs in the coming days.
Oil Price Still High
West Texas Intermediate crude price is trading above $65 per barrel, which is still favorable for exploration and production activities. In its short-term energy outlook, the U.S. Energy Information Administration (“EIA”) projected the average spot price of West Texas Intermediate crude at $77.10 per barrel this year, reflecting a profitable business environment for upstream operations.
Shale Oil Production to Rise
In April, total oil production from shale resources in the United States will likely increase by 68,000 barrels per day to 9,214 thousand barrels per day (MBbl/D), per EIA. The shale resources comprise Anadarko, Appalachia, Bakken, Eagle Ford, Haynesville, Niobrara and Permian.
Of all the resources, the 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 26,000 barrels per day to 5,622 MBbls/D in April.
Permian Explorers in the Spotlight
It is clear that a favorable crude pricing scenario is backing higher production volumes. Improving Permian production amid healthy oil prices has raised the incentive to keep an eye on the stocks of three companies operating in the most prolific basin. All the firms 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
Favorable oil prices are a boon for Matador Resources Company’s MTDR upstream operations. MTDR has a strong presence in oil-rich core acres of the Wolfcamp and Bone Spring plays in the Delaware Basin. Promising oil price is likely to aid it in increasing production volumes. Matador agreed to acquire Advance Energy Partners Holdings, LLC, which comprises several oil and natural gas-producing properties and undeveloped acreage. Once the deal closes, MTDR expects the acquisition to be accretive to important valuation and financial metrics.
Pioneer Natural Resources Company PXD has a strong presence in the low-cost oil-rich Midland basin — a sub-basin of the broader Permian. The upstream energy player has a massive inventory of premium wells that will likely generate significant returns.
Pioneer Natural is focused on returning capital to shareholders. This includes a substantial variable dividend and a strong base dividend. PXD is also employing opportunistic share repurchases to reward shareholders.
Pioneer Natural has considerably lower exposure to debt capital than the composite stocks belonging to the industry. This reflects PXD’s strong balance sheet on which the firm can rely to sail through the volatile energy businesses.
Diamondback Energy, Inc. FANG is a leading pure-play Permian operator. FANG expanded its footprint in the Midland basin since it acquired all leasehold interest and associated properties of Lario Permian, LLC — a wholly-owned affiliate of Lario Oil & Gas Company. FANG also has an investment-grade balance sheet.
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