Oil price remains favorable for exploration and production businesses, although fears of recessions are haunting the market. It is expected that oil price will stay solid, thereby aiding operations of Diamondback Energy, Inc. FANG, Chevron Corporation CVX and Exxon Mobil Corporation XOM.
Oil Price Still Handsome
West Texas Intermediate crude price, trading at more than $75 per barrel, is still handsome for exploration and production activities. Possibilities of weak global economic growth, as central banks continue to raise interest rates to combat high inflations, could hurt oil demand. This bearish factor will probably get outweighed by the looming winter, which could increase the demand for heating oil, supporting crude price, at least in the short run.
Shale Oil Production to Rise
In October, total oil production from shale resources in the United States will likely increase by 132,000 barrels per day to 9,115 thousand barrels per day (MBbl/D), 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 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 66,000 barrels per day to 5,413 MBbls/D in October.
Permian Explorers to Gain
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 bet on stocks of companies operating in the most prolific basin.
3 Stocks in the Spotlight
Diamondback Energy is a leading pure-play Permian operator, having a solid footprint in 421,000 net acres in the prolific Midland and Delaware sub-basins. Diamondback Energy, carrying a Zacks Rank #2 (Buy), projects its oil production for 2022 to be almost flat with 2021 and expects its free cash flow to increase more than 90%.
The Zacks Consensus Estimate for the firm’s earnings per share for 2022 and 2023 has been revised upward in the past 30 days.
The primary growth driver of Chevron is its low-cost Permian projects. In the prolific basin, CVX has had a strong presence since the early 1920s. Most of its acreage in the basin has either insignificant or zero royalty payments, thereby improving Chevron’s prospects. The company, sporting a Zacks Rank #1 (Strong Buy), has a much stronger balance sheet compared to the composite stocks belonging to the industry. Hence, the leading integrated player has the capabilities to sail through business uncertainties, backed by its strong financials. You can see the complete list of today’s Zacks #1 Rank stocks here.
ExxonMobil is banking on Permian, where it has a deep pipeline of projects. Considering the low cost of production in the basin, XOM is likely to generate handsome returns. In Permian, ExxonMobil continues to invest, which is the key to the energy major’s success. The #2 Ranked integrated player also has a stronger balance sheet than the composite stocks belonging to the industry.
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