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Permian Production to Reach Record High: 4 Stocks to Benefit
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Crude oil output from the prolific Permian Basin of the United States is set to reach record levels in the month of December, indicating a major recovery in domestic production. Thanks to massive COVID-19 vaccine rollout programs around the world, energy demand has witnessed a significant uptick over the past few months, thereby boosting the price of the commodity to more than $80 per barrel. Permian producers like Pioneer Natural Resources Company , ConocoPhillips (COP - Free Report) , Chevron Corporation (CVX - Free Report) and Diamondback Energy, Inc. (FANG - Free Report) are likely to benefit from this increased output.
With the rising rig count in the largest U.S. shale patch, production is projected to hit 4,953 thousand barrels per day (MBbls/d) in December, indicating an increase from 4,886 MBbls/d in November, per the U.S. Energy Information Administration. The latest projected figure also indicates an improvement from the 4,913 MBbls/d record set in March 2020, just before coronavirus-induced demand destruction wrecked havoc on the global energy market.
Why Permian?
Permian’s low break-even costs are a major reason for the return of capital to this shale play. Other domestic shale patches are still way below their normal production and capital level. Other basins are not witnessing massive capital inflows yet as producers are still following a disciplined approach and many analysts opine that the global oil market might witness oversupply in 2022. Per EIA, global oil demand is expected to reach 100,880 MBbls/d while supply will reach 101,420 MBbls/d, as stated by Bloomberg. The jump in Permian production is not expected to have any significant effect on oil prices as other producing regions are still showing constraint and demand is recovering at a rapid pace. Also, capped production and significant compliance witnessed among OPEC+ members are keeping prices steady.
4 Companies to Benefit:
Pioneer Natural
Pioneer Natural, being the top producer in the Basin, is expected to see a rise in the bottom line from increased production. It projects total production for this year in the range of 613-619 thousand barrels of oil equivalent per day (MBoe/d), suggesting an improvement from 367.3 MBoe/d in 2020. Oil production will likely be within 356-359 MBbls/d.
Pioneer Natural provided the production outlook based on the 2021 capital budget of $3.1-$3.4 billion. The company boasts that the capital spending will be fully funded by the $6.6-billion projected cash flow for this year. It reported strong third-quarter earnings, thanks to higher oil equivalent production and price.
ConocoPhillips
ConocoPhillips is expected to become the second-largest hydrocarbon producer in the Permian Basin with the $9.5-billion acquisition from Shell. Hence, rising output from the region will likely boost ConocoPhillips’ bottom line through the next few quarters. Ryan Lance, ConocoPhillips’ chief executive officer, expects demand for oil to recover to pre-pandemic levels by the beginning of 2022, per Bloomberg.
Following the closing of the deal in the fourth quarter, ConocoPhillips is expected to generate massive cash. It expects to generate $1.9 billion in free cash flow in 2022 alone. Rising cash from operations due to the deal will help the company provide higher returns to shareholders, in line with its plan of returning 30% cash from operations to shareholders.
Chevron
Driven by robust output in the Permian Basin, Chevron's domestic volumes so far this year increased some 10% from the year-earlier level to 1,113 MBoe/d. It has substantial holdings of around 2.2 million net acres in the region. This Zacks Rank #1 (Strong Buy) company seems one of the best-placed global integrated oil companies to achieve sustainable production ramp-up. You can see the complete list of today’s Zacks #1 Rank stocks here.
Chevron's earnings and cash flows have been steadily improving, boosted by higher crude realizations and recovery in consumption. Consequently, Chevron recently raised its quarterly dividend by 3.9% to $1.34 per share (or $5.36 per share annualized) and revived the stock repurchase program to buy back $2-$3 billion in shares.
Diamondback Energy
Diamondback Energy is among the top 10 producers in the Permian Basin, thanks to a series of acquisitions it made in the shale play. It owns 394,000 net acres in the Delaware and Midland regions, with more than 7,000 drilling locations. Its Permian Basin production for the December quarter is anticipated in the 363-370 MBoe/d band.
Diamondback Energy raised its 2021 average daily production guidance to 370-372 MBoe/d from the prior-guided range of 363-370 MBoe/d. Full-year capital spend estimate has been cut to $1.49-$1.53 billion, down 4% from the midpoint of the prior-guided range of $1.525-$1.625 billion. Lowering capital spending while boosting output boasts well for Diamondback Energy’s improving efficiency in operations.
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Permian Production to Reach Record High: 4 Stocks to Benefit
Crude oil output from the prolific Permian Basin of the United States is set to reach record levels in the month of December, indicating a major recovery in domestic production. Thanks to massive COVID-19 vaccine rollout programs around the world, energy demand has witnessed a significant uptick over the past few months, thereby boosting the price of the commodity to more than $80 per barrel. Permian producers like Pioneer Natural Resources Company , ConocoPhillips (COP - Free Report) , Chevron Corporation (CVX - Free Report) and Diamondback Energy, Inc. (FANG - Free Report) are likely to benefit from this increased output.
With the rising rig count in the largest U.S. shale patch, production is projected to hit 4,953 thousand barrels per day (MBbls/d) in December, indicating an increase from 4,886 MBbls/d in November, per the U.S. Energy Information Administration. The latest projected figure also indicates an improvement from the 4,913 MBbls/d record set in March 2020, just before coronavirus-induced demand destruction wrecked havoc on the global energy market.
Why Permian?
Permian’s low break-even costs are a major reason for the return of capital to this shale play. Other domestic shale patches are still way below their normal production and capital level. Other basins are not witnessing massive capital inflows yet as producers are still following a disciplined approach and many analysts opine that the global oil market might witness oversupply in 2022. Per EIA, global oil demand is expected to reach 100,880 MBbls/d while supply will reach 101,420 MBbls/d, as stated by Bloomberg. The jump in Permian production is not expected to have any significant effect on oil prices as other producing regions are still showing constraint and demand is recovering at a rapid pace. Also, capped production and significant compliance witnessed among OPEC+ members are keeping prices steady.
4 Companies to Benefit:
Pioneer Natural
Pioneer Natural, being the top producer in the Basin, is expected to see a rise in the bottom line from increased production. It projects total production for this year in the range of 613-619 thousand barrels of oil equivalent per day (MBoe/d), suggesting an improvement from 367.3 MBoe/d in 2020. Oil production will likely be within 356-359 MBbls/d.
Pioneer Natural provided the production outlook based on the 2021 capital budget of $3.1-$3.4 billion. The company boasts that the capital spending will be fully funded by the $6.6-billion projected cash flow for this year. It reported strong third-quarter earnings, thanks to higher oil equivalent production and price.
ConocoPhillips
ConocoPhillips is expected to become the second-largest hydrocarbon producer in the Permian Basin with the $9.5-billion acquisition from Shell. Hence, rising output from the region will likely boost ConocoPhillips’ bottom line through the next few quarters. Ryan Lance, ConocoPhillips’ chief executive officer, expects demand for oil to recover to pre-pandemic levels by the beginning of 2022, per Bloomberg.
Following the closing of the deal in the fourth quarter, ConocoPhillips is expected to generate massive cash. It expects to generate $1.9 billion in free cash flow in 2022 alone. Rising cash from operations due to the deal will help the company provide higher returns to shareholders, in line with its plan of returning 30% cash from operations to shareholders.
Chevron
Driven by robust output in the Permian Basin, Chevron's domestic volumes so far this year increased some 10% from the year-earlier level to 1,113 MBoe/d. It has substantial holdings of around 2.2 million net acres in the region. This Zacks Rank #1 (Strong Buy) company seems one of the best-placed global integrated oil companies to achieve sustainable production ramp-up. You can see the complete list of today’s Zacks #1 Rank stocks here.
Chevron's earnings and cash flows have been steadily improving, boosted by higher crude realizations and recovery in consumption. Consequently, Chevron recently raised its quarterly dividend by 3.9% to $1.34 per share (or $5.36 per share annualized) and revived the stock repurchase program to buy back $2-$3 billion in shares.
Diamondback Energy
Diamondback Energy is among the top 10 producers in the Permian Basin, thanks to a series of acquisitions it made in the shale play. It owns 394,000 net acres in the Delaware and Midland regions, with more than 7,000 drilling locations. Its Permian Basin production for the December quarter is anticipated in the 363-370 MBoe/d band.
Diamondback Energy raised its 2021 average daily production guidance to 370-372 MBoe/d from the prior-guided range of 363-370 MBoe/d. Full-year capital spend estimate has been cut to $1.49-$1.53 billion, down 4% from the midpoint of the prior-guided range of $1.525-$1.625 billion. Lowering capital spending while boosting output boasts well for Diamondback Energy’s improving efficiency in operations.