Since the beginning of this year, oil explorers and producers have focused their attention on shale resources following a favorable crude price environment. The number of rigs will likely continue to increase as the price of oil is expected to remain healthy. So, with increased drilling activity, production will likely increase, helping the businesses of upstream energy players.
Oil prices still high
The price of West Texas Intermediate crude is trading at over $75 per barrel, which is still very supportive for exploration and production activity. Additionally, in its near-term energy outlook, the U.S. Energy Information Administration (“EIA”) forecast the average spot price of West Texas Intermediate crude at $95.88 per barrel this year, significantly higher than $68.21 in 2021.
Shale oil production will increase
In December, total oil production from shale resources in the United States will likely increase by 91,000 barrels per day to 9,191,000 barrels per day (MBbl/d), according to the EIA. Shale resources include Anadarko, Appalachia, Bakken, Eagle Ford, Haynesville, Niobrara and Permian.
Of all the resources, the Permian will see the biggest increase in daily oil production next month, according to the EIA’s drilling productivity report. In the Permian, the EIA forecasts oil production to increase by 39,000 barrels per day to 5,499 MBbls/d in December.
Permian explorers in the spotlight
It is crystal clear that a favorable crude price scenario supports higher production volumes. Improving Permian production amid healthy oil prices has prompted keeping an eye on the stocks of companies operating in the most prolific basin.
3 shares to win
Diamondback Energy, Inc. (CROC – Free Report) is one of the leading pure-play operators in the Permian. Diamondback Energy, carrying a Zacks Rank #3 (Hold), will expand its footprint in the Midland Basin since it recently signed a definitive purchase agreement to acquire all of Lario’s leasehold interests and associated properties. Permian, LLC – which is a wholly owned subsidiary of Lario Oil & Gas Company. FANG also has a good track record.
Pioneering Natural Resources Company (PXD – Free Report) has a strong presence in the low-cost oil-rich Midland Basin – a broader Permian sub-basin. The No. 3-ranked upstream energy player has a massive inventory of top-quality wells that are likely to generate significant returns for the business.
Pioneer Natural is focused on returning capital to shareholders. This includes a substantial variable dividend as well as a strong base dividend. PXD also uses opportunistic stock buybacks to reward shareholders.
Pioneer Natural has significantly lower exposure to debt capital than industry-owned composite stocks. This reflects PXD’s strong balance sheet that the company can rely on to navigate through volatile energy business. You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Strong oil prices are a boon for Matador Resource Companyit is (MTDR – Free report) upstream operations. Indeed, MTDR has a strong presence in the oil-rich prime acres of the Wolfcamp and Bone Spring areas in the Delaware Basin. The favorable oil price should help it increase production volumes. For 2022, the upstream energy player with a Zacks ranking of 3 forecasts total production of 37.7 to 38.3 million barrels of oil equivalent (MMBoE), higher than 31.5 MMBoE in 2021.
On another positive note, Matador plans to put a net 71 wells up for sale this year, including operated and unoperated wells. The main priorities that MTDR has set for itself for this year are reducing debt levels, providing free cash flow and maintaining or increasing dividends.