U.S. Oil Firms Up Output, Pressuring Prices Lower

August 5, 2014

Production rose for domestic oil and gas drillers as Texas and New Mexico continue to be hot spots for unconventional drilling methods like hydraulic fracturing.

But a selloff in their shares Tuesday due to lower oil prices also underscored how their success in extracting crude has shielded U.S. consumers from global political turmoil but not necessarily their investors.

EOG (EOG), which operates in the Eagle Ford and Permian Basin formations of Texas as well as the Bakken field in North Dakota, said Q2 earnings jumped 38% to $1.45 per share. Analysts were expecting $1.37. Operating revenue climbed 9% to $4.19 billion, missing views of $4.23 billion.

Crude Keeps Flowing

Total production rose 17% annually to 591,000 barrels of oil equivalent per day, led by a 33% jump in crude and condensate output. EOG also announced successful drilling results from its assets in the New Mexico portion of the Delaware Basin.

The Houston-based company also raised its quarterly dividend 34% to 16.75 cents.

Shares rose 1% in late trading Tuesday after losing 2% in the regular session.

Also late Tuesday, Diamondback Energy (FANG) reported a 133% jump in Q2 EPS to 70 cents, beating estimates by a penny. Revenue nearly tripled to $127 million, but fell short of views for $129.5 million.

In a July operational update, the company said Q2 production rose 32% to 17,800 barrels of oil equivalent per day from Q1 and 171% from Q2 a year ago.

Also last month, Diamondback raised its 2014 production guidance to 17,000-19,000 barrels per day from an earlier outlook of 16,000-18,000.

Diamondback has been investing heavily in the Permian and announced a deal in July to buy acreage there for $538 million. It is also one of the leaders in horizontal drilling in the area, according to Jason Wangler, senior vice president at Wunderlich Securities.

The company should continue posting double-digit production growth as it focuses on new formations like the Clearfork and Spraberry plays, he said.

Shares dipped 0.5% late Tuesday after falling 3% earlier.

Output Outlook Raised

Carrizo Oil & Gas (CRZO) reported a 15% jump in Q2 EPS to 70 cents, beating views by 3 cents. Revenue rose 41% to $193.48 million, topping estimates for $172.5 million.

Revenue from oil rose 57% to $166 million, accounting for 86% of all revenue. Production climbed 18% to 33,319 barrels of oil equivalent per day.

Carrizo also raised its 2014 oil-only production target to 18,000-18,300 barrels per day from an earlier outlook of 17,500-18,200.

But shares fell 5.6% as the price of crude hit a six-month low.

Neal Dingmann, managing director at Suntrust Robinson Humphrey, attributed the production increase to improvement at Carrizo's core field in the Eagle Ford and the drilling of wells closer together.

"It means drilling in more locations, but on the positive side they aren't seeing any fall off of production when they space things tighter," he said.

'Downspacing' Fields

Such downspacing has become a popular way to squeeze more oil out of a tight play. But such innovation has also helped send the price of oil below $100 per barrel, which is a "psychologically" important threshold for the driller stocks, Dingmann said.

"For a while you had a lot of geopolitical worries, which was holding up the price of oil," he said. "Now you continue to hear about record amount of production in the Bakken and the U.S. (oil and gas industry) is a victim of its own success" as demand doesn't increase proportionally with the supply.

Meantime, state and local governments are looking to restrict fracking activity, though a deal was reached Monday in Colorado to keep two anti-fracking initiatives off the November ballot.