Texas’ new oil boom is here, fueled by the shale deposits of the Permian Basin. Oil reserves in the region are well represented in IBD 50with Matador Resources (MTDR), Diamondback Energy (FANG), Earth Stone Energy (IS), SM Energy (SM) and Pioneer Natural Resources (PXD) tops the list.
All have bases built or expanded after purchase 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 were booming, but much of the needed supplies came from existing discoveries, shale deposits and oil wells. The war has since escalated, forcing the US government to reopen unused shale fields, and companies to reinvest.
Shale plays account for 64% of total US crude oil production in 2021.
Surveying, the greater Permian Basin now accounts for nearly 40 percent of crude oil production and 15 percent of natural gas production, according to the Federal Reserve Bank of Dallas. As a result, this dry zone became the largest source of oil in the United States
Permian Basin leads to new oil boom in Texas
In fact, oil production in the west Texas and southeast New Mexico regions is expected to rise by about 50,000 barrels per day (bpd) to a record 5.45 million bpd in November, the US Energy Information Administration said in a recent production report. The Bakken in North Dakota and Montana is expected to produce 1.19 million barrels per day.
President Biden and others have criticized oil companies for not reinvesting their profits into oil production.
Earnings reports for the third quarter of IBD 50 Growth Stocks to Watch, at least so far they reflect an increase in production and reinvestment in capital expenditure.
For example, Matador production increased nearly 50%, from 73,000 BOE per day in Q3 2020 to over 105,000 BOE per day in Q3 2022. This includes a seventh rig added in the third quarter. However, capital spending for the third quarter was still below initial guidance, at $242 million.
Oil stocks beat earnings estimates last week and raised their full-year forecasts.
The quarterly report came just days after the Biden administration announced the release of an additional 15 million barrels from the US Strategic Petroleum Reserve in an effort to lower energy prices.
Shares of Matador Resources hit a new high and climbed profit zone Friday.
Other companies scoop up competitors instead of investing in their own production. Last month, Diamondback acquired FireBird Energy in exchange for 5.86 million shares of common stock and $775 million in cash.
“This sudden acquisition adds significant, high-quality inventory right in our backyard,” said Travis Stice, Chairman and CEO of Diamondback.
“With over 350 locations adjacent to our current position in the Midland Basin, this asset adds more than a decade of inventory at our expected pace of development, including inventory that competes for capital immediately in Diamondback’s current development plan.”
Oil stocks build bases as earnings rise
Diamondback stock is climbing on the right side of a cup base and is approaching their buy point of 162.34. The researcher is due to report profits on November 8 before the market opens. Analysts expect earnings of $6.36 per share.
Both Matador and Diamondback have a perfect 99 Composite ratings.
Earthstone Energy reported earnings on Thursday, beating sales estimates but falling short of earnings. ESTE shares build a double bottom base with a buy point of 17.25. It is line of relative strength also climbs.
SM Energy consolidated and briefly crossed a buy point at 47.91 before falling back. The stock still gained more than 2% on Friday. SM beat revenue and sales estimates earlier this week.
Both Earthstone and SM Energy have near-perfect composite scores of 98 and 97, respectively.
Pioneer Natural Resources beat upper and lower Q3 estimates on Oct. 28. PXD shares are trying to build a base as they consolidate with a preliminary buy point at 288.56. Investors may want to wait for an early entry after 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 premium fundamentals.
Follow Michael Molinski on Twitter @IMmolinski
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