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Oil Price Spurt Makes These 3 Shale Explorers Worth Buying

Nilanjan Banerjee
·4-min read

Energy investors have so far witnessed an extremely volatile oil market this year. From more than $60-a-barrel at the beginning of 2020, the West Texas intermediate (WTI) crude plunged into the negative territory for the first time ever in April. However, price of the commodity is slowly recovering, brightening up prospects for shale explorers in the United States.

Oil Price Bounces Back

The price of WTI crude has improved more than 46% in the past month, encouraging upstream energy companies operating in shale plays to reverse production cuts. EOG Resources Inc EOG, among the leading shale players in the United States, has reportedly decided to accelerate oil production in second-half 2020 after curtailing a quarter of oil volumes in May. Moreover, Parsley Energy PE, with strong footprint in the Permian basin, recently unveiled plans in a presentation to restore a significant proportion of curtailed oil volumes in early June.

Oil prices are likely to improve further since the global demand picture is brightening up with easing lockdowns measures that were taken to contain the spread of coronavirus. Notably, the news that Saudi Arabia and Russia have agreed in principle to extend the existing collective production cut through July is giving a partial boost to oil price.

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Recovering crude prices will thus drive cashflow of exploration and production companies.With higher profit levels, the upstream firms will be able to strengthen balance sheets and other financials, which have been weakened by the pandemic.

Drillers in the Spotlight

Investors should also note that U.S. Energy Information Administration (EIA) predicts new-well oil production per rig from Eagle Ford to increase from 1,288 barrels a day in May to 1,519 barrels in June. Also, for Bakken, new-well oil production per rig will likely rise to 1,309 barrels a day in June from 1,109 in May. Moreover, in the Permian Basin, EIA expects oil production per rig from new-well in June to total 795 barrels a day, up from 717 in May.

Hence, investors who are looking to gain from the bullish crude scenario can bet on stocks with significant exposure to either the prolific Eagle Ford, Bakken play or Permian. Since picking winning stocks is not an easy job, we have employed our proprietary Stock Screener to narrow down the search to the following three stocks. All the companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Concho Resources CXO, headquartered in Midland, TX, is a leading explorer and producers in the Permian. In the most prolific basin in America, the company’s operations spread across 550,000 net acres. The company expects its 2020 oil production volumes to remain flat with 2019 despite plans to curtail capital spending. This reflects its strong operational efficiencies.

The stock has witnessed upward earnings estimate revisions for 2020 and 2021, respectively, in the past 30 days.

The upstream operations of Exxon Mobil Corporation XOM, based in Irving, TX, has strong focus on liquids-rich onshore U.S. resources, comprising the Permian Basin of West Texas and New Mexico and the Bakken oil play in North Dakota.

Notably, the company is likely to see earnings growth of 12.5% in the next five years versus the industry’s 3.3%.

Devon Energy Corporation DVN, headquartered in Oklahoma City, has operations in prolific shale plays, comprising the Delaware Basin, the western area of the great Permian, and Eagle Ford. The firm has witnessed upward earnings estimate revisions for its bottom line for 2020 and 2021, respectively.

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Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
 
EOG Resources, Inc. (EOG) : Free Stock Analysis Report
 
Concho Resources Inc. (CXO) : Free Stock Analysis Report
 
Devon Energy Corporation (DVN) : Free Stock Analysis Report
 
Parsley Energy, Inc. (PE) : Free Stock Analysis Report
 
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Zacks Investment Research