Sunday, May 19, 2024

Permian Basin Fuels New Texas Oil Boom, Lifting Shale Oil Stocks Near Buy Points

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The new Texas oil boom is here, powered by shale deposits in the Permian Basin. The region’s oil stocks are well-represented inside the IBD 50, with Matador Resources (MTDR), Diamondback Energy (FANG), Earthstone Energy (ESTE), SM Energy (SM) and Pioneer Natural Resources (PXD) topping the list.

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All have built bases or are extended past buy points.

For the first time this year, shale oil companies are reinvesting their profits in the Permian Basin.

When Russia attacked Ukraine in February, oil stocks boomed but much of the needed supply came from existing discoveries, shale deposits and oil drills. The war has escalated since that time, forcing the U.S. government to reopen idle shale fields, and companies have begun to reinvest.

Shale deposits accounted for 64% of total U.S. crude oil production in 2021.

Drilling down, the greater Permian Basin now accounts for nearly 40% of crude and 15% of natural gas production, according to the Federal Reserve Bank of Dallas. As a result, this arid zone has grown into the largest source of oil production in the U.S.

Permian Basin Leads New Texas Oil Boom

In fact, oil output in the west Texas and southeastern New Mexico regions is forecast to rise by about 50,000 barrels per day (bpd) to a record 5.45 million bpd in November, the U.S. Energy Information Administration said in a recent productivity report. The Bakken in North Dakota and Montana is forecast to produce 1.19 million bpd.

President Biden and others have harshly criticized oil companies for not reinvesting their profits into oil production.

Third-quarter earnings reports on IBD 50 Growth Stocks to Watch, so far at least, reflect an increase in production and reinvestment in capital expenditures.

For example, Matador’s production has increased by nearly 50%, from 73,000 BOE per day in Q3 2020 to over 105,000 BOE per day in Q3 2022. That includes a seventh drilling rig added in the third quarter. However, Q3 capital expenditures still came in below initial guidance, at $242 million.

The oil stock beat earnings estimates last week and increased its full-year guidance.

The quarterly report came just days after the Biden administration announced the release of an additional 15 million barrels from the U.S. Strategic Petroleum Reserve, in a bid to drive down energy prices.

Matador Resources stock hit a new high and climbed into its profit zone Friday.

Other companies are scooping up rivals, rather than investing in their own production. Last month, Diamondback acquired FireBird Energy in exchange for 5.86 million shares of common stock and $775 million of cash.

“This bolt-on acquisition adds significant, high-quality inventory right in our backyard,” stated Travis Stice, chairman and CEO of Diamondback.

“With over 350 locations adjacent to our current Midland Basin position, this asset adds more than a decade of inventory at our anticipated development pace, including inventory that competes for capital right away in Diamondback’s current development plan.”

Oil Stocks Build Bases As Profits Surge

Diamondback shares are climbing the right-side of a cup base and approaching their buy point of 162.34. The explorer is due to report earnings on Nov. 8 before the market opens. Analysts are looking for a profit of $6.36 per share.

Both Matador and Diamondback have perfect 99 Composite Ratings.

Earthstone Energy reported earnings on Thursday, beating sales estimates but coming up short on profits. ESTE shares are building a double-bottom base with a buy point of 17.25. Its relative strength line has also been climbing.

SM Energy is consolidating and briefly passed a 47.91 buy point before falling back. The shares still gained more than 2% on Friday. SM beat earnings and sales estimates earlier this week.

Both Earthstone and SM Energy have near-perfect Composite Ratings of 98 and 97, respectively.

Pioneer Natural Resources beat Q3 top and bottom-line estimates on Oct. 28. PXD stock is trying to build a base while it consolidates with a preliminary buy point of 288.56. Investors may want to wait for an early entry once it forms a base. PXD has a perfect 99 Composite Rating.

The IBD 50 is IBD’s flagship of leading growth stocks with strong relative price strength and top-notch fundamentals.

Follow Michael Molinski on Twitter @IMmolinski

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