The ongoing bullish trend in oil prices continues to support exploration and production activities. Upstream operators are expected to expand their operations in prolific shale regions, leading to an increase in the number of drilling rigs. As drilling activities ramp up, production is anticipated to rise, positively impacting companies engaged in exploration and production. This upward momentum in the sector presents a favorable outlook for these businesses.
High Oil Price
West Texas Intermediate crude price is trading at more than $80 per barrel, which is highly favorable for exploration and production activities. Also, in its short-term energy outlook, the U.S. Energy Information Administration (“EIA”) projected the average spot price of West Texas Intermediate crude at $79.70 per barrel this year, still a handsome price for upstream operations. With the possibility of strong summer fuel demand drawing down inventory and tightening the commodity supply, oil prices continue to stay in the bullish territory.
Permian Oil Production to Rise
The EIA expects total oil production from shale resources in the United States to increase by 17,000 barrels per day to 9,853 thousand barrels per day (MBbl/D) for June. The shale resources comprise Anadarko, Appalachia, Bakken, Eagle Ford, Haynesville, Niobrara and Permian.
Of all the resources, only the Permian and Eagle Ford will witness an increase in daily oil production this month, according to the EIA’s drilling productivity report. In the Permian, the EIA projects oil production to rise by 18,000 barrels per day to 6,187 MBbls/D this month.
Permian Explorers in the Spotlight
It is evident that a favorable crude pricing scenario is backing higher production volumes. Improving Permian production amid healthy oil prices has raised the incentive to keep an eye on companies like Exxon Mobil Corporation XOM, Chevron Corporation CVX, and Diamondback Energy, Inc. FANG, operating in the most prolific basin. All the stocks carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
3 Stocks to Gain
ExxonMobil and Chevron have solid upstream businesses. In the Permian Basin, ExxonMobil has a solid pipeline of profitable projects. Chevron, too, has a strong foothold in the Permian, where a significant portion of the energy major’s acreage has minimum royalty payments.
With the acquisition of Pioneer Natural Resources, ExxonMobil recently more than doubled its presence in the most prolific basin in the United States. The combined player now has a footprint of more than 1.4 million net acres in the Delaware and Midland – two sub-basins in the broader Permian – with a resource estimated at 16 billion barrels of oil equivalent.
Diamondback Energy, a leading pure-play Permian operator, has reported ongoing enhancements in the average productivity per well in the Midland Basin. Thus, the exploration and production company is likely to continue witnessing increased production volumes.
The pending Endeavor merger, expected to close in the fourth quarter of this year, will significantly increase its Permian footprint, which the company cited at a combined pro forma scale of approximately 831,000 net acres. With the combination, FANG will have more inventory of core drilling locations with a break-even oil price of less than $40 per barrel.
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