The Permian Blowout Is Coming
Look, we both know how saturated today’s headlines are over the geopolitical storm that is the Middle East.
Sometimes it’s impossible to look away.
Whether it’s over empty tankers in the Persian Gulf disappearing out of sight and then suddenly emerging with a full load of Iranian crude oil, or a battered oil industry in Venezuela that has been in a deathward spiral for more than a decade.
Don’t even get me started on the daily speculation over the U.S.-China trade war.
Thing is, too much is lost among the gloom and doom.
People start to miss the little things.
For the last few years, I told you that one of the biggest hurdles for Permian drillers is getting their product to market.
Easing that pipeline bottleneck has become a top priority in West Texas.
So when EPIC Midstream announced that its first shipment of Permian crude was piped to Corpus Christie via its Y-grade natural gas liquids pipeline, it was a small sigh of relief for us. This pipeline will be transporting up to 400,000 barrels of oil per day while EPIC is finishing up its other three pipeline projects.
All three will pipe that Permian oil straight to the port of Corpus Christie.
Yet this flood of crude coming out of the Permian is coming during a period when the EIA reported that U.S. demand for petroleum products has topped 22 million barrels per day recently.
The Permian Blowout
Now, when it comes to finding those investment gems in the oil sector, things aren’t as easy as they used to be.
Ten years ago, we could’ve blindly thrown a dart against the wall and hit an easy double-digit winner in the E&P sector.
It’s true, and my longtime readers know precisely how lucrative things were.
Between 2009 and 2010, we were banking profits at a rate of nearly one every two weeks — at a 92% winning rate!
Nearly all of them were double-digit winners, with several paying out as much as four to five times our initial investment.
Ah, but those were the good old days, when the U.S. shale boom was young and the media had only just started to pay attention to the now-famous household plays like the Bakken in North Dakota.
Over the course of a decade, we saw U.S. drillers drive our domestic production higher by an unprecedented 7 million barrels per day!
In fact, crude output in the Permian Basin is poised to surpass our TOTAL PRODUCTION from 2008.
The EIA is projecting that Permian production will average 4.4 million barrels per day next month.
That’s 49 barrels of oil being pumped out of Texas soil every second.
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To put a little perspective on that, keep in mind that this prolific oil play — which is officially the largest oil field on the planet right now — accounts for more than one-third of all the crude oil extracted within the United States today.
But here’s the catch: These aren’t the good old days anymore!
We’re more than a decade into the U.S. shale boom, and some investors are starting to get the Permian blues.
Some people have also correctly pointed out the slowdown taking place in the biggest tight oil plays in the U.S.
In the Permian alone, one prominent producer named Concho Resources has had to pull back a bit, admitting to drilling its wells a little too close to each other.
Simply put, investors can’t possibly expect to see the same kind of growth going forward.
It almost makes you wonder whether we’ve hit peak Permian.
And yet there are still those little gems to be found.
Matador Resources is one of them.
Shares of this driller are not only trading at around 10.5 times its trailing earnings, but this company has a knack for churning out profits in the Permian and has exceeded analysts’ earnings consensus 11 out of the last 13 quarters.
After watching Occidental Petroleum shell out an enormous amount of cash to acquire Anadarko recently, you can’t help but wonder who’s next.
I suggest starting your search for that next blockbuster sale right here.
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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