Permian Oil Producers Steal the Spotlight: 4 Likely Gainers

Among all U.S. shale plays, Permian has been mainly contributing to the nation’s oil production boom. Notably, the production growth of crude volumes in the prolific basin has crossed 340% since 2010.

Although there has been a transportation capacity constraint in the basin, the problem has been easing since new pipelines are coming online. Notably, Permian drillers are becoming more efficient since they are producing more crude with the deployment of a lesser number of rigs.

Permian Mostly Behind US Oil Volume Surge

Considering U.S. Energy Information Administration’s (EIA) chart for the nation’s field production of crude oil, it has been clear that America has managed to boost oil production in the past decade. EIA data showed that from 158,566 thousand barrels of oil volumes since January 2008, the United States has more than doubled its crude output to 365,992 thousand barrels, as of July 2019.

Among the prolific domestic oil and gas producing regions — Anadarko, Appalachia, Bakken, Eagle Ford, Haynesville, Niobrara and Permian — Permian’s contribution has been the highest to America’s massive oil production growth. EIA claimed that Permian's crude production has dramatically increased from below 1,000 thousand barrels a day through entire 2009 to 4,414 thousand barrels a day in September 2019.

Permian Has More Oil to Offer

There are strong indications that crude production will continue to grow in the Permian. We need to consider the basin’s soaring drilled but uncompleted (DUC) oil wells. Per EIA’s data, the inventory of DUC oil wells has skyrocketed from just 639, as of December 2013, to 3,839 as of August 2019.

Following the completion of the wells’ initial drilling activities, some additional tasks are required to prepare those wells for producing crude at peak levels. Precisely, activities like cementing, perforating, casing and hydraulic fracturing will prepare the DUC wells for final production.

Pipeline Bottleneck Problem to Ease

The transportation capacity of oil has so long been constrained in the Permian due to lack of sufficient pipeline network to carry rising crude volumes to key markets. To solve the pipeline bottleneck problem, energy players have been investing billions in fresh transportation capacities.

Notably, the bottleneck problem is easing as some major pipelines have commenced operations. The notable one is Cactus II oil pipeline where Plains All American Pipeline LP PAA has a 65% ownership. The pipeline, having a capacity to transport 670,000 barrel per day of oil, has commenced transporting Permian oil to Ingleside, TX, in August. The partnership is planning to extend the deliveries of the pipeline to Corpus Christi by the first quarter of 2020.

Another such contribution has been made by EPIC Midstream Holdings Inc. In August, the pipeline operator reportedly began transporting Permian volumes to the U.S. Gulf Coast through its new 400,000 barrel per day pipeline.

Stocks to Gain

Since Permian will continue to be a major contributor to America’s oil production growth, it would be wise for investors to keep an eye on upstream energy players with significant hold in the basin.

We have shortlisted four stocks carrying a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Headquartered in Oklahoma City, Devon Energy Corporation DVN has operations across more than 250,000 net acres of land in the Delaware sub-basin, in the broader Permian. In the sub-basin, the company has a huge inventory of high-return drilling locations, backing crude production.

Pioneer Natural Resources Company PXD, headquartered in Irving, TX, is a pure-play Permian company with operations spreading across roughly 680,000 net acres. Notably, the company is expecting its 2019 Permian oil production to grow significantly through 2019.

Headquartered in Midland, TX, Diamondback Energy, Inc. FANG is a pure-play Permian player with presence across more than 342,000 net acres in the Permian. The company has estimated more than 7,600 net horizontal drilling locations, reflecting solid crude production growth potential.

Concho Resources Inc. CXO, headquartered in Midland, TX, is a leading oil producer in the prolific Permian basin. Notably, the company is expecting 2019 oil production growth in the band of 22% to 26%.

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Plains All American Pipeline, L.P. (PAA) : Free Stock Analysis Report
 
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