Bet on These 3 Permian Stocks on Rising US Shale Oil Production
Rising Permian production amid favorable oil price has raised the incentive for adding stocks of firms operating in the most prolific basin. Devon (DV...
Production in U.S. shale plays continues to rise as oil price has recovered massively from the coronavirus pandemic-hit low mark in 2020. It seems that the glorious days for upstream energy players are gradually approaching, thanks to recovering fuel demand as coronavirus vaccines are rolling out at a massive scale.
EIA Expects US Shale Oil Production to Increase
In September, total production of oil from shale resources in the United States will likely increase by 49,000 barrels per day to 8.1 million barrels per day (MMBbl/D) – the highest since April 2020 – 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 – the most prolific basin in the United States – will witness the highest increase in daily oil production this month, offsetting the volume declines in Eagle Ford, Bakken and Anadarko, according to EIA’s drilling productivity report. In the Permian, EIA projects oil production to rise by 49,000 barrels per day to 4.8 MMBbls/D in September, suggesting the highest level since March 2020.
Permian Explorers in the Spotlight
The increasing production in Permian is being backed by higher drilling activities. In its weekly release, Baker Hughes Company BKR reported that from 179 oil rigs in the Permian for the week ended Jan 8, 2021, the tally has increased massively to 248 for the week ended Aug 27, 2021.
Recovery in oil price has been providing incentives to explorers and producers to gradually return to the shale play. With West Texas Intermediate crude price approaching the $70-per-barrel mark, oil price has recovered considerably from the pandemic-hit April last year, when the commodity was in the negative territory.
Thus, improving production in the Permian amid a favorable crude pricing environment has raised the incentive for adding stocks of companies operating in the most prolific basin.
3 Stocks to Buy
Since selecting the right companies, with a footprint in the Permian, from the stock universe is not an easy job, we are employing our proprietary Stock Screener to zero down on three prospective stocks. Two of the stocks sport a Zacks Rank #1 (Strong Buy), while one carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Devon Energy Corp. DVN has a strong footprint in the Delaware Basin – a sub-basin of the broader Permian. The upstream player’s position in the sub-basin spans around 400,000 net acres across multiple formations. From the resources, the company is expecting high-margin growth, backed by excellent well productivity. Of the total upstream budget for 2021, Devon has planned to allocate 80% capital toward the Delaware Basin.
So far this year, the #1 Ranked company has gained 78.7% and is well placed to gain further. Backed by strong results in the June quarter, the leading upstream energy player has declared a fixed-plus-variable dividend of 49 cents per share, reflecting an increase of 44% from the prior quarter.
Headquartered in Dallas, TX, Matador Resources Company MTDR has a strong footprint in the liquid-rich Delaware Basin’s Wolfcamp and Bone Spring plays. The Zacks #1 Ranked company has been ramping up production in the basin and has produced record daily barrels of oil equivalent volumes from Delaware in the recently concluded June quarter. By this year’s end, the company is expecting to have 34 gross operated wells in progress in the Delaware basin.
Shares of this leading upstream energy player have gained 136.4% so far this year, backed by investors’ excitement about strong second-quarter results. In the June quarter, the company’s average daily oil equivalent total production rose 26% sequentially, beating the guidance for an increment of 19 to 22%.
In the Permian basin, Chevron Corporation CVX is among the largest oil and gas producers. From the Delaware and Midland sub-basins, the company is expecting to produce higher daily oil equivalent barrels in 2021 as compared to 2019. From operations in the prolific sub-basins, backed by continued efficiency improvements, the energy giant expects to generate more than $3 billion in free cashflow (excluding working capital) in 2021.
So far this year, the Zacks Rank of 2 company has gained 13.4% backed by the news that it revived its stock repurchase program and vowed to buy back $2-$3 billion in shares annually, starting from the third quarter.
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