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Permian Growth Story to Continue: 5 Oil Producers in Focus

Nilanjan Choudhury

For several years now, the Permian basin has been considered the most significant shale field in the United States. While the blistering pace of drilling and output growth have slowed down of late under investor demand to focus on enhancing returns, the region is by far the primary driver of production growth in the U.S. Crucially, volumes from this low-cost, premier unconventional play will continue to increase and break new record for many years to come, reflecting its status as the dominant domestic growth area for onshore oil production.

Permian: A Shale Basin with Superior Economics    

A sedimentary basin lying underneath the western part of Texas and the south-eastern part of New Mexico, the Permian Basin Shale covers roughly 75,000 square miles, almost half the size of California.

Experts say that it’s cheaper to drill and complete oil wells in the Permian Basin, as compared to most other major fields. Moreover, there are certain parts of the shale play whose well-returns are the best in the U.S. Permian’s attractive economics means that producers can make money and sustain growth there at the current, $60-a-barrel price. According to estimates, the average breakeven prices in most of the Permian well locations is below $50 per barrel – the lowest in the U.S.

The low operating cost stems from the region's extensive pipeline infrastructure, plentiful labor and supplies, and relatively warm winters that makes year-round work possible. Most other domestic share regions need far higher prices to support new developments and expansions.

Oil Majors Bullish on This Prolific Formation

According to business information provider IHS Markit, the Permian play is estimated to hold a staggering 60-70 billion barrels of recoverable crude oil - enough to feed all the domestic refineries for 12 years. Another independent energy research and business intelligence company Rystad Energy sees even more potential in the Permian acreage. It estimates that the region holds 100 billion barrels of recoverable oil resources.

Regardless of the varying reserve estimates, it is primarily because of the Permian shale that volume from U.S. oil fields has risen more than 50% since mid-2016 to 12.8 million barrels per day.

Despite the slight uptick in service costs, a growing number of companies are devoting bulk of their investments into the Permian as they turn their attention to less-expensive projects that can deliver cash quickly in today’s ‘moderate oil’ environment.

Such is the popularity of this unconventional basin that oil supermajors like ExxonMobil XOM and Chevron CVX have made the region mainstays of their future production.

Permian Production Continues to Ramp Up

In a recent monthly report, the Energy Department said that U.S. oil output from seven major shale formations is expected to rise by 49,000 barrels per day in December to a record 9.133 million barrels per day. While certain regions like Anadarko Basin and the Eagle Ford are expected to experience production declines, the biggest increase, by far, is forecast in the Permian Basin of Texas and New Mexico, where production is set to climb by 57,000 barrels per day to a record of 4.727 million barrels per day. The ever-improving pipeline infrastructure, allowing more regional oil to find its way to the global market, should improve Permian’s long-term production potential even further.

5 Stocks to Focus On

With production continuing to boom in the Permian play and investor’s strong appetite for stocks focused in that region, we present five companies, each carrying Zacks Rank #3 (Hold), that investors should watch out for.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

Pioneer Natural Resources Company PXD is a pure-play Permian basin producer. In the Midland basin, the firm has amassed a large acreage position with operations across 750,000 gross acres of land. In the prolific basin, Pioneer Natural has estimated more than 20,000 drilling sites that are likely to provide the company with decades of crude production.

Concho Resources Inc. CXO focuses on growth through a combination of acquisitions and active drilling in the lucrative Permian Basin spread over west Texas and New Mexico. The company currently owns roughly, 640,000 net acres in the Permian Basin and is one of the largest producers from the unconventional shale.

Callon Petroleum Co. CPE – headquartered in Houston, TX – is solely focused on the Permian Basin. The company boasts an impressive footprint (86,000 net acres) throughout the region. The company entered the basin in 2009 with around 8,800 net acres and has been strengthening its hold in the region since then.  

Parsley Energy, Inc. PE, based in Midland, TX, is an independent oil and natural gas explorer and producer. Founded in 2008, the company focuses on growth through a combination of acquisitions and active drilling in the lucrative Permian Basin. The company currently owns roughly 190,000 net acres in the Permian Basin - 148,500 acres in the Midland Basin and 41,500 acres in the Delaware Basin.

Midland, TX-headquartered Diamondback Energy, Inc. FANG is an independent oil and gas exploration & production company, with its primary focus on the Permian Basin, where it has around 394,000 net acres in the Delaware and Midland regions with more than 7,000 drilling locations and production of 215,000 barrels of oil equivalent per day.

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Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
 
Chevron Corporation (CVX) : Free Stock Analysis Report
 
Diamondback Energy, Inc. (FANG) : Free Stock Analysis Report
 
Pioneer Natural Resources Company (PXD) : Free Stock Analysis Report
 
Concho Resources Inc. (CXO) : Free Stock Analysis Report
 
Parsley Energy, Inc. (PE) : Free Stock Analysis Report
 
Callon Petroleum Company (CPE) : Free Stock Analysis Report
 
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