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The Zacks Analyst Blog Highlights: Encana, Denbury, Whiting and Pioneer Natural

The index endured another tough week as investors braced for an economic slowdown.

For Immediate Release

Chicago, IL –December 3, 2018 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Encana Corp. ECA, Denbury Resources Inc. DNR, Whiting Petroleum Corp. WLL and Pioneer Natural Resources Company PXD.

Here are highlights from Friday’s Analyst Blog:

Is Low Oil a Slippery Affair for U.S. Shale Producers?

Although there is a positive correlation between the fate of explorers and producers with oil price, the commodity’s current price is not low enough to halt shale players’ fracking operations.

With the advancement of technologies, well costs have declined drastically. Also, upstream energy players, with operations in key domestic shale plays, have reportedly hedged part of their 2018 and 2019 liquid volumes. These developments will likely insulate some of the key shale players from bearish crude landscape.

Oil Slips Below $50

West Texas Intermediate (WTI) crude futures recently fell to $49.41 a barrel, marking the lowest since Oct 9, 2017. This reflects rising supply by major producers and a soft demand outlook on fears of economic slowdown.

Through the week ended Nov 23, stockpiles of U.S. crude rose 3.6 million barrels to settle at 450.5 million barrels, per the U.S. Energy Information Administration. In fact, the inventory level not only rose for 10 straight weeks but is also above the five-year average mark by 7%. Temporary U.S. allowance to some nations to purchase Iranian crude despite Washington’s restored sanctions against the Islamic Republic is also driving global crude supply.

President Vladimir Putin reportedly made a comment that Brent crude, which is around $60 per barrel, is not hurting Russia’s economy and will not result in a deficit in government budget. The announcement days before OPEC’s Vienna meeting is making oil traders more bearish.     

US Shale Players to Defy Bearish Crude

Low Break-Even Oil Price

Most of the shale plays in the domestic market have the break-even oil price at significantly below $50, per a presentation by Pioneer Natural Resources Company. The break-even crude price for several domestic resources — like Permian, Eagle Ford and Bakken — is even below $30. A published article claimed that producers in all the three resources are benefitting from declining total well costs, which include expenses associated with drilling, pumping, fluid employed for activities related to hydraulic fracturing and proppant. 

Liquid Output Hedged

Energy research and consulting group Wood Mackenzie claimed that many upstream players, employing hydraulic fracturing technique, have hedged oil production to endure the volatility in commodity prices. Wood Mackenzie added that the companies have set their hedging in such a way that they will benefit when crude drops below $56 per barrel. Hence, the derivative contracts are insulating the companies as oil hovers around $50. Wood Mackenzie’s analysis revealed that derivatives contracts on average protected 45% of the U.S. drillers’ — only those firms employing derivative contracts — 2018 liquid production and 25% of next year’s output.   

Stocks to Keep An Eye On

Companies employing the hedging program or with operations in Permian, Eagle Ford or Bakken are well placed to defy the weak crude pricing scenario. We would want investors to keep a track of the following upstream players or continue to hold them if they are already in their portfolio. Each of the stocks carries a Zacks Rank #3 (Hold).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Per data provided by Wood Mackenzie, Concho Resources Inc., among the leading oil producers in the prolific Permian Basin, has hedged more than 80% of its 2018 liquid production and over 60% of 2019 output.

Encana Corp. — with strong presence in oil-rich Permian and Eagle Ford core resources — has also hedged significantly more than 60% of its 2018 liquid volumes and slightly more than 40% of 2019 liquid output, the energy consulting firm added.

Denbury Resources Inc. is another upstream energy player that employed oil price derivative contracts to hedge considerably more than 60% of 2018 liquid production and close to 60% of 2019 output, added Wood Mackenzie.

Whiting Petroleum Corp., with presence in the Bakken play, has covered more than 60% of 2018 liquid production under hedging program, according to the energy consulting group.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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Encana Corporation (ECA) : Free Stock Analysis Report
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Denbury Resources Inc. (DNR) : Free Stock Analysis Report
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