The oil industry has changed quite a bit over the years, and recent technological advances have helped the sector to produce even more efficiently and obtain more oil. Ever since the U.S. field oil production peaked in the 1970’s, we have been increasingly dependent on finding (profitable) unconventional methods of extracting oil and gas, and there has definitely been a huge change in this regard over the past few years.
As you can see, production has been decreasing ever since the 70’s until the mid-2000’s when production started to move higher once again. In fact, during the last three years, domestic crude output has jumped more than 1.6 million barrels per day, largely due to the impact of one advance in particular; fracking.
Fracturing technology has been around for a very long time and is more important than ever to companies today. Hydraulic fracturing makes it possible for oil and gas to be extracted in places where conventional technologies are ineffective or cost-prohibitive.
Hydraulic fracturing involves the use of water pressure to create fractures in rock that allow the oil and natural gas it contains to escape and flow out of a well. Currently, about 65% of all rigs operating in U.S. soil are drilling horizontally utilizing hydraulic fracturing. Studies estimate that up to 80% of natural gas wells drilled in the next decade will require horizontal drilling and fracturing to properly complete the set up.
It is important for investors to know that hydraulic fracturing will be a very significant contributor in creating energy stability for the US. Investors should be looking at the components that are heavily involved in hydraulic fracturing as these could continue to be in focus.
Below, we have highlighted a few companies which should be on your radar in this regard. Any of these should benefit from a continued push towards more fracking, or are at the forefront of the industry, and could see further gains as a result:
U.S Silica Holdings, Inc. (SLCA)
U.S. Silica Holdings produces and sells commercial silica in the U.S and operating in two segments, Oil and Gas proponents, and Industrial & Specialty products. In other words, they sell the sand that goes into fracture fluid to the oil and gas industry. While it may sound like a boring business, the stock has soared and would have nearly given you a 200% return in the past year.
This company has benefited as the U.S. saw a tight oil and gas boom in the mid 2000’s. During the last three years, domestic crude output has jumped significantly, and SLCA has been a major beneficiary.
Reported revenues for the second quarter were up 59% to $205.8 million due to a 27% increase in sand volume, which resulted in a 45% increase in quarterly earnings per share. EPS was $0.55/share, beating analyst estimates by 19.57%.
In the past 60 days, 100% of estimates have revised higher for the current quarter and 92% of analysts have raised their earnings estimates for the next year. We currently have U.S. Silica Holdings as a Zacks Rank #1 (strong buy), and have U.S. Silica in the top 20% of all industries.
Halliburton Company (HAL)
Halliburton Company provides a range of services and products for the exploration, development, and production of oil and natural gas to oil and gas companies worldwide. Halliburton is the world’s second-largest oil service provider and has had an outstanding run with earnings in the past few quarters.
Halliburton reported that income from continuing operations for the second quarter of 2014 was $776 million, or$0.91 per diluted share dissapointing analyst expecations EPS of $0.92. This compares to income from continuing operations for the first quarter of 2014 of $623 million, or $0.73 per diluted share.
Halliburton's total revenue in the second quarter of 2014 was a record $8.1 billion, compared to $7.3 billion in the first quarter of 2014. Operating income was $1.2 billion in the second quarter of 2014, 23% higher than operating income of $970 million in the first quarter of 2014 resulting from significant activity improvements in North America and the Eastern Hemisphere.
In the past 60 days, all estimates have moved higher for the current quarter and current year, while the trend has been almost universily positive for the current year as well. Thus, the outlook for Halliburton is very promising though we do currently have it as a Zacks Rank #3 (hold), but investors should be watching any day now for the rank to improve given the rising estimates. However, it should be noted that right now, the Oil-Field industry ranked in the bottom 18% of all industries.
Encana Corp. (ECA)
Encana is engaged in exploration for, development, production, and marketing of natural gas, oil, and natural gas liquids in Canada and the United States. Encana’s strong second quarter of 2014 saw the company continue to make faster than expected progress in the execution of its strategy, with the reporting period highlighted by the acquisition of Eagle Ford assets, the highly successful initial public offering (IPO) of PrairieSky Royalty Ltd. (PrairieSky) and impressive liquids production growth.
Encana generated cash flow of approximately $656 million or $0.89 per share in the second quarter of 2014; operating earnings of $171 million or $0.23 per share; and net earnings attributable to common shareholders of $271 million or $0.37 per share.
Year-to-date, the company has reported cash flow of approximately $1.8 billion for a 41 percent rise year-over-year, while $686 million in operating earnings and $387 million in net earnings attributable to common shareholders are increases of 61 percent and 29 percent, respectively, from 2013 levels.
The company expects to invest $2.6–$2.7 billion in 2014 (for upstream activities), higher than its previous forecast. The increase is owing to the planned spending in Eagle Ford acreages, which the company acquired recently.
Encana also increased its 2014 total production guidance to 86,000–91,000 bbls/d. Encana currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.
The oil industry is currently on a bullish run dating back to the mid 2000’s and the concentration of hydraulic fracturing creates an opportunity for more potential of these stocks to earn gains. With these three stocks, your portfolio will have a strong portion in the ‘alternative’ oil sector that should return positively as hydraulic fracturing continues to drive American oil production in the near term.
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Read the analyst report on ECA
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- Oil, Gas, & Consumable Fuels
- Commodity Markets
- Hydraulic Fracturing
- natural gas