The partial recovery in crude may invite more shale players to gather in domestic patches. In fact, IEA expects U.S. firms to outpace Saudi Arabia & Russia in crude production.
U.S. shale players and Saudi Arabia have recently adopted various strategies to cope with the different phases of the energy sector. The goal has been to combat the persistent weakness in crude, and to gain an edge in the race to win title of the world’s largest oil producer.
The current business scenario is quite profitable for the United Sates, as crude prices recovered partially after OPEC decided to extend the production cut deal. The uptick in oil prices may encourage more shale players to gather on domestic oil resources and thereby boost production. The International Energy Agency (IEA) expects the United States to become the world’s second-largest oil producer in 2018, outpacing Saudi Arabia. IEA also expects 2018 to be a remarkable year, as U.S. shale players have the potential to outpace even Russia, the largest oil producer in the world.
OPEC Deal Supports Partial Crude Recovery
Since the beginning of 2018, crude has been trading above the $60-per-barrel psychological mark. Notably, for the first time after 2014, West Texas Intermediate (WTI) crude started the year above $60. We view it as partial recovery as the commodity traded above $100 a barrel before mid-2014. The extension of the production cut deal by OPEC players supported the rally.
On Nov 30, 2017, OPEC members met non-OPEC players to decide on an extension of the crude production cut accord, first signed in late 2016, beyond the first quarter of 2018. More than 20 oil producers, including leading exporters like Russia and Saudi Arabia, participated in the meeting. As expected by most analysts, all crude exporters decided to extend the deal through 2018-end; Saudi Arabia, Russia, and their allies have pledged to put 1.8 million barrels a day of crude oil out of market.
US Shale Players to Benefit
The rally in crude is favorable for U.S. drillers. In fact, drillers in the domestic shale plays have been ramping up operations following a more than 15% rise in oil prices in 2017. As per the recent rig count report of Houston-based oilfield services player Baker Hughes, a GE company (BHGE), the total number of rigs exploring oil and gas in the United States jumped from 665 to 929 through 2017.
Higher drilling resulted in increased production. IEA added that the surge in U.S. production by 0.6 million barrels per day in 2017, thanks to the shale revolution, backed the increase in global crude output despite OPEC’s compliance with the production cut deal.
Per IEA, the daily production of crude in the United States is recorded at 9.9 million barrels, the maximum in the past five decades. On top of that, IEA elevated the projection for oil production growth through 2018 to 1.1 million barrels per day from 870,000 in a recent report. If the projections come true, the United Sates will surpass Saudi Arabia — the world’s second largest producer of crude — with a historic production of more than 10 million barrels a day.
Time to Focus on Shale Players
Cost-cutting measures and efficient operations have helped U.S. shale players bounce back, said IEA. Also, new methods such as horizontal drilling and hydraulic fracturing (or fracking) could reduce the dependence of United States on foreign crude and will help the country to export domestic crude to more nations globally, said CNBC.
Picking winning oil stocks seems prudent at the moment. We have employed our proprietary Stock Screener to zero in on companies with solid Zacks Rank and other favorable parameters.
Headquartered in Houston, TX, EOG Resources, Inc. EOG is a leading upstream energy player. The company holds premium acreages in the Permian, Bakken and Eagle Ford oil shale plays in the United States.
We expect the company to report earnings growth of 157.2% and 206.9% in 2017 and 2018, respectively. EOG Resources sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Continental Resources, Inc. CLR, based in Oklahoma City, OK, is an exploration player with a focus on Bakken shale resources. The company posted an average positive earnings surprise of 69.5% for the last four quarters.
The Zacks #1 Ranked player will likely post year-over-year earnings growth of 139.8% and 294.7% in 2017 and 2018, respectively.
Headquartered in Irving, TX, Pioneer Natural Resources Company PXD conducts upstream operations in premium resources in Eagle Ford Shale play. The firm surpassed the Zacks Consensus Estimate for earnings in all the prior four quarters, the average positive earnings surprise being 67.6%.
Pioneer Natural sports a Zacks Rank #1.
Matador Resources Company MTDR, headquartered in Dallas, TX, is a leading upstream firm with operations in the prospective Eagle Ford shale play.
The company, with a Zacks Rank of 1, beat the Zacks Consensus Estimate for earnings in three of the last four quarters, the average positive surprise being 34.7%.
