How "Buying Local" In The Oil Biz Is Paying Off...
It’s been a good year for “local” oil producers in the U.S.
Booming shale plays like North Dakota’s Bakken formation and the Eagle Ford in Texas are bursting at the seams with new oil production. For the specialized operators in this field, the cash is finally starting to roll in, too.
As you’ll see, share prices are swinging higher for these pure-play shale operators. Let’s take a look at our favorites…
You may recall in late-2012 I shared a graphic about America’s anticipated oil production growth:
Two standouts for production growth were obvious: the South Texas Eagle Ford and North Dakota’s Bakken.
And since late 2012, as expected, those two shale formations have been booming.
BOOM. Since 2011, production for the Eagle Ford is already up 330% — from 128,000 barrels per day (bpd) to over 550,000 bpd.
BOOM. The Bakken formation has seen a similar ramp-up. Since 2011, North Dakota’s oil production (primarily Bakken) is up 93% — from 419,000 bpd to over 800,000 bpd.
Both shale plays are quickly approaching their growth goals — and operators are cashing in.
The targeted or “local” operators have seen the highest gains so far. Unlike large integrated companies, like Exxon or BP, these are the smaller companies that simply focus on exploration and production. With laser-like focus these locals can maximize efficiencies and profit.
Here are two recent examples:
EOG Resources (EOG), one of the local players in the Eagle Ford, is up 27% so far year to date.
Oasis Petroleum (OAS), one of the local players in the Bakken, is up a stellar 48%!
These “local” players are proven winners in America’s shale patch. (Heck, short-term gains like that are making me wish I was a day trader!)
That’s the power of finding a local, tailored oil play. Once a sweet spot is locked in, a local company can increase production and efficiencies — they can tailor drill plans, use established service companies, perfect completion techniques, lower costs via optimization and more. Add it all up and it’s the perfect pure-play investment scenario for us.
Don’t Forget This “Local” Player…
Another local player that I highlighted back in late-2012 was Pioneer Natural Resources (PXD.)
Pioneer has been cashing in on its growth from the Eagle Ford. Since our late-2012 write-up, shares are up some 66%. Pioneers Q2 results kicked the share price into hyper-drive lately, the company is up over 15% in a week — that’s fantastic. We’re seeing a real life example of what high oil prices, controlled costs and increasing production will do for a local player.
But get this…
Going forward Pioneer has another ace up its sleeve.
You see, in the table above the top two growth stories appeared to be the Eagle Ford and Bakken — which is absolutely true from a growth percentage standpoint. But the one thing that table lacks is how to weigh that growth.
Looking at the 5th place growth story, the Permian Basin, there’s more than meets the eye.
You see, although the growth rate of 70% may not seem impressive compared to the triple-digit growth stories of the Eagle Ford and Bakken, in a sheer barrels comparison the Permian Basin is the elephant in the room.
According to the latest information from Baker Hughes, the Permian Basin has over 450 rigs working. That’s more rigs than the Eagle Ford and Bakken combined.
So you see, although the Permian isn’t growing as fast as the Eagle Ford and Bakken — it is producing a massive amount of oil and holds as much, if not more, profit potential.
What makes this the Permian so impressive? As we’re finding out with other shale plays across the country the Permian is a layered or “stacked” shale play.
Take for example the Bakken oil field in North Dakota. For the most part there are only a few layers — including upper/lower/middle Bakken as well as the Three Forks formation. Combined these layers represent anywhere from 100-150 feet of pay dirt.
The Permian Basin on the other hand has nearly 1,500 feet of oil pay zone. The Clear Fork, Spraberry, Wolfcamp, Bone Spring, Cline and more! The sheer size and profit potential for this area, is massive.
And surprise surprise, the way to play it is the same!
Different Oil Patch, Same Profit
According to the Texas Railroad Commission, Pioneer is the #2 in oil production for the Permian Basin (second only to Occidental Petroleum, not a “local” by our standards.)
With production booming in the Eagle Ford and the Permian, Pioneer is in the sweet spot of the oil market.
Although prices may still be riding a little high on the latest quarterly results, Pioneer should be on your radar.
Keep your boots muddy,
Original article posted on Daily Resource Hunter