3 Energy Stocks to Buy Now for the Prolific Permian Basin

by Aaron Levitt | February 21, 2014 9:58 am

Hydraulic fracturing has really changed the game with respect to America’s energy production. A variety of energy stocks continue to use the new advanced drilling technique to delve deeper into new shale formations to produce record amounts of crude oil and natural gas.

Source: iStockphoto.com

The drilling technique is also having its way some older and legacy fields in here the U.S. as well. One of the prime examples is the rich Permian Basin, which is becoming a goldmine for energy stocks.

The vast field — which encompass 86,000 sq. miles throughout West Texas and into New Mexico — is actually several distinct geographic strata staked up on top of each other. Think of a big, seven-layer wedding cake. That makes it possible for energy stocks operating in the Permian to tap multiple shale layers from just one well pad

Based on this fact, studies conducted by the Energy Information Administration (EIA) estimate that the Permian contains 29% of the nation’s future reserve growth[1]. And those reserves are pretty huge.

According to the last USGS assessment of the region, the Permian holds roughly 41 trillion (Tcf) of undiscovered unconventional natural gas, 1.3 billion barrels of shale oil and 1 billion barrels of natural gas liquids (NGLs).

Those supreme conventional and unconventional assets have the EIA predicting that production in the Permian will grow more than any other region in the United States through next year. More than the Bakken[2]. More than the Marcellus. And even more than the Eagle Ford.

Which is why the energy stocks to buy now are the ones tapping the prolific Permian. Here are three of the best.

Compare Brokers[3]

Pioneer Natural Resources

energy-stocks-PXD-stockPioneer Natural Resources (PXD[4]) is one of the largest landholding energy stocks in the Permian with 900,000 gross acres and more than 7,000 wells. The bulk of those conventional wells are located in the West Spraberry field of the Permian.

The Spraberry is the 5th largest oil field and 15th largest natural gas field in the U.S. Those wells feature long-lived oil reserves, steady production growth and low maintenance capex costs. All of which have padded the bottom line for PXD over the years.

However, PXD isn’t sitting on its laurels with regards to the Permian.

The company has begun a series of horizontal drilling programs designed to frack the Spraberry as well as the neighboring Wolfcamp. These exploration efforts have yielded and extra 141 million barrels of oil equivalent (BOE) to Pioneer’s already impressive reserves estimations in the region.

Overall, PXD stock predicts that it has nearly 10 billion BOE[5] in potential resources in the play. Given its sheer acreage position in the region, PXD could be the best of the energy stocks to buy in the prolific Permian. And given the recent pullback in PXD stock, now could be a great time to load up on shares.

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Occidental Petroleum

energy-stocks-oxy-stockLike PXD, Occidental Petroleum (OXY[6]) is a monster landholder in the Permian. Overall, OXY owns nearly 2.5 million acres in the field — more than most other energy stocks. And given that acreage, OXY is the no. 1 producer of Permian crude oil and natural gas. In 2012, Oxy managed to produce nearly 43 million barrels[7] of oil from its conventional wells. That’s nearly double PXD’s production.

Like Pioneer, OXY is beginning to use horizontal drilling across its Permian acreage. Occidental has expanded into the hot Cline and Wolfcamp regions within the Permian. Those areas have already yielded prime production for a variety of other energy stocks. Given OXY’s expertise in EOR techniques, that unconventional acreage could yield some huge results for the firm.

The potential for OXY stock is even more enticing when you consider the upcoming split into two separate firms. Occidental “proper” will be a lean, mean Permian machine. Investors may want to buy shares now to take advantage of the future gains caused by the separation.

Compare Brokers[3]

Concho Resources

energy-stocks-cxo-stockWhile it’s a smaller firm than energy stocks like OXY or PXD, Concho Resources (CXO[8]) Permian power is still quite impressive. Focusing on the Delaware Basin of the massive Permian, CXO has continued to see rising reserve and production growth as it fracks the field.

For all of 2013[9], CXO saw a 20% production increase versus 2012’s numbers to reach 33.6 million barrels BOE. More importantly, 63% of that production was higher priced crude oil.

Yet, the best may still be ahead for CXO. The firm estimates that its Permian drilling programs will allow it to see a CAGR of 25% in its production. This will allow Concho to more than double its total production of oil and natural gas by 2016, making it very competitive with other energy stocks in the region.

CXO stock shares are the most expensive on this list, but the smaller producer may be worth it. Especially when you consider that its $11 billion market cap could be easily swallowed by a larger integrated major looking to add to its production numbers.

The Bottom Line: For investors, the prolific Permian contains all the energy socks they need to buy now.

As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.

  1. reserve growth: http://www.epmag.com/Production-Drilling/An-Aging-Giant-Going_85579
  2. Bakken: https://investorplace.com/2013/10/bakken-shale-oneok-continental-resources-oasis-petroleum/
  3. Compare Brokers: https://investorplace.com/options-trading/broker-center/
  4. PXD: http://studio-5.financialcontent.com/investplace/quote?Symbol=PXD
  5. 10 billion BOE: http://www.ogj.com/articles/2014/02/pnr-reports-3-3-billion-capex-plan-for-2014.html
  6. OXY: http://studio-5.financialcontent.com/investplace/quote?Symbol=OXY
  7. 43 million barrels: http://www.rrc.state.tx.us/permianbasin/top_operators_graph.pdf
  8. CXO: http://studio-5.financialcontent.com/investplace/quote?Symbol=CXO
  9. For all of 2013: http://finance.yahoo.com/news/concho-releases-13-operational-data-194003913.html

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