3 Permian Basin Oil Stocks for Every Investor's Radar
When oil prices crashed below $50 per barrel last November, I told you that oil looked cheap and that every one of you needed to prepare for the next run higher.
Given the strength of global demand, it was inevitable that crude prices were going to head higher.
A few weeks later, oil prices started making a huge comeback.
So far in 2019, WTI prices have increased nearly 50%.
It wasn’t a surprise, dear reader.
Any investor taking a look at what was happening inside the oil sector should’ve seen it coming.
Now here we are, at the beginning of another summer driving season.
And once again, we know which direction crude prices will head going forward.
I have to ask: Will you be ready this time around?
Why Oil? Why Now?
Are we finally reaching the breaking point? The moment when WTI prices make their run past $70 per barrel?
It’s looking more like it every day.
The latest catalyst is coming straight from the White House.
Trump announced that there would no longer be waivers for buying Iranian crude, and that sent the oil markets higher over the last few days. The waivers would be eliminated starting in May, and the goal for the Trump administration is clear: push Iranian crude exports all the way down to zero.
Right now, Iran is exporting around one million barrels per day.
There’s a slight catch to this bullish news.
You probably remember just as well as I do when Trump burned producers like Saudi Arabia last year by granting exemptions on his Iran sanctions. After all of the hard-lined rhetoric coming out of the White House over the summer, it was a slap in the face to OPEC+, which had been increasing supply in anticipation of those sanctions.
I don’t think they’ll be fooled twice.
In fact, the Saudis already said they’re going to take a wait-and-see approach.
That uneasiness is helping oil continue its rally today.
Naturally, these sanctions are on top of the geopolitical volatility that’s helped drive prices higher.
That’s not to mention the chaos enveloping Venezuela, which pushed the country’s oil production lower, or the most recent crisis in Libya, where one warlord, Khalifa Haftar, has gained Trump’s support (which is directly at odds with the EU) and has gone on the offensive.
I can’t help but ask whether investors finally see the perfect storm brewing for oil prices this summer.
Truth is, it doesn’t matter.
The only question that matters is: Do you?
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3 Permian Basin Oil Stocks for Every Investor’s Radar
Oil is heading higher.
I mention this again because the investment herd will soon realize the consolidation that’s taking place in the world’s largest oil play: the Permian Basin.
Back in 2017, not many people noticed that Exxon spent $5.6 billion buying up a bunch of companies owned by the Bass family. After all, it was only a drop in the bucket compared to when Exxon closed out its $41 billion takeover of XTO Energy back in 2010.
That $5.6 billion deal added roughly 3.4 billion barrels of oil equivalent to its Permian Basin resource base.
Usually, a small buyout in the Permian Basin wouldn’t be enough to attract the herd’s attention.
But every once in a while, they have no choice but to sit up and take notice.
Two weeks ago, Chevron made its power move in the Permian after it agreed to shell out $50 billion for Anadarko Petroleum. At $66 per share, Chevron was willing to pay a nearly 40% premium for more than 240,000 acres in the Delaware Basin.
Now, the fact that Chevron was willing to spend that much to increase its Permian acreage shouldn’t be too shocking for you. Over the last few years, we’ve talked over and over again about the crucial role that West Texas and New Mexico will play for our crude oil production growth for decades to come.
That’s old news.
If Chevron’s acquisition is a signal that the big fish are looking around to boost their Permian presence, what you should be asking yourself is: Who’s next?
Remember, Big Oil’s modus operandi has always been to buy its way into major plays like the Permian.
They have the cash to do it, so why wouldn’t companies like Shell try to expand as well?
The immediate names that should jump onto your radar are the big independent players like Pioneer Natural Resources (NYSE: PXD), which controls the largest position in the Midland Basin at over 680,000 net acres.
Two other names that should make your short list are Diamondback Energy (NASDAQ: FANG), a pure Permian driller with over 360,000 acres stretching across both the Midland and Delaware Basins, and Occidental Petroleum (NYSE: OXY), which holds 1.4 million net acres in the region.
Of course, I don’t think it’ll just be the large Permian operators that will catch the eyes of the likes of Exxon and Shell.
Until next time,
A true insider in the energy markets, Keith is one of few financial reporters to have visited the Alberta oil sands. His research has helped thousands of investors capitalize from the rapidly changing face of energy. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital as well as Investment Director of Angel Publishing's Energy Investor. For years, Keith has been providing in-depth coverage of the Bakken, the Haynesville Shale, and the Marcellus natural gas formations — all ahead of the mainstream media. For more on Keith, go to his editor's page.
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