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Opinion: These U.S. Shale-Oil Companies Are Poised To Profit When Prices Rise

News Article by Inplex Custom Extruders



When oil prices stage a sustained recovery, U.S. shale-oil producers will be ready to increase production dramatically in the space of a few weeks.

So investors might want to discover the companies waiting to complete the most profitable wells.

Shale-oil companies transformed the global oil market by making the U.S. the world’s largest producer in 2014, according to the Energy Information Administration, following decades of over-reliance on the OPEC cartel and other exporters.

That led to the decision by Saudi Arabia, other OPEC members and Russia to flood the market during a time of low demand — the opposite of the cartel’s traditional remedy of cutting production after a price decline.

The goal of OPEC and Russia has been to defend their market share and force production cuts among shale producers, who face relatively high costs.


An apparent softening of this stance has helped push up the price of West Texas crude oil for April delivery CLJ6, +3.69% by 31% since Feb. 11 to $37.84 a barrel on Thursday.

The oil-price gain reflects investors’ expectations that “production is going to inevitably fall,” according to Phil Flynn, a senior market analyst at Price Futures Group.

In his daily energy commentary on Thursday, Flynn said: “There are more [capital expenditure] cuts from big oil companies and more talk of Saudi Arabia looking to banks to borrow billions. Not only is OPEC and non-OPEC working toward an agreement to freeze production, we are seeing early signs that production is now falling.”

There’s a limit to how long governments that rely almost exclusively on oil can wait as they try to destroy the U.S.’s land-based industry.

Another good sign for oil is surprisingly high demand for gasoline in the U.S.

Keeping the powder dry

U.S shale producers have hundreds of drilled but uncompleted wells, called DUCs. Taking a DUC to completion took an average of 10 days during 2015, according to NavPort, which collates oil-well and rig data using regulatory reports.

“While each basin has a significant amount of DUCs, location is going to come into play when operators are deciding to frack the well — basins with the highest average initial BOE [barrel of oil equivalent] return should result in operators holding onto DUCs for longer periods of time, in hopes to get the biggest bang for their buck,” according to Amie Parenti, NavPort’s director of analysis services.

In an interview Friday, Parenti said the number of drilled but uncompleted wells in all basins held by reporting companies had grown by 34% during 2015.

Parenti provided lists showing the top 10 reporting exploration and production companies among the four shale basins with the largest number of drilled but uncompleted wells.

To be sure, we don’t know if we’re already in the middle of a sustained, significant rise in oil prices. Despite gains in the past month, West Texas crude oil was up only 2% year-to-date through Tuesday:















So there’s no way of knowing how long a company will need to wait (or survive) to maximize its profit when completing the DUCs. This is why we added another column to the data for publicly traded companies: ratios of long-term debt to equity as of Dec. 31.

DUCs by basin

The data supplied by NavPort includes average BOE per well produced for each reporting producer in the specific basin within the first six months after fracking is completed. It also includes an efficiency measure, dividing that average production figure by proppant short ton. Proppant is the sand that is combined with water and chemical additives and pumped into a well under pressure to open cracks in the shale from which oil and gas can flow. It represents a major portion of the total cost to bring a well to production.

Here are the lists of the top 10 producers in the four basins with the largest number of drilled but uncompleted wells (DUCs). The list is sorted by average barrel of oil equivalent (BOE) during the first six months of production per proppant short ton used:

Appalachian Basin
Company Ticker DUCs Avg. 6 month BOE/ Well Avg. 6 month BOE/ Proppant ST Debt/Equity – Dec. 31
Cabot Oil & Gas Corp. COG,-0.13% 51 161,100 44.7 101%
Seneca Resources Corp. 62 126,600 32.9
EQT Corp. EQT,+0.37% 55 82,800 27.6 61%
Chesapeake Energy Corp. CHK,+9.94% 47 105,400 26.3 503%
Range Resources Corp. RRC,+1.05% 89 84,200 24.4 96%
Chevron Corp. CVX,+2.15% 33 48,600 23.1 25%
Rice Drilling B LLC 29 145,500 22.2
Consol Energy Inc. CNX,+3.44% 25 100,000 21.6 79%
Repsol SA REP,+2.30% 23 63,800 21.0 68%
Chief Oil and Gas 38 107,700 12.5
Sources: NavPort, FactSet
Eagle Ford Basin
Company Ticker DUCs Avg. 6 month BOE/ Well Avg. 6 month BOE/ Proppant ST Debt/Equity – Dec. 31
Pioneer Natural Resources Co. PXD,+4.34% 13 144,800 47.5 44%
Marathon Oil Corp. MRO,+1.78% 65 79,400 32.1 39%
Chesapeake Energy Corp. CHK,+9.94% 88 83,600 27.0 503%
BHP Billiton Ltd. BHP,+4.92% 42 39,600 22.5 48%
SM Energy Co. SM,+1.22% 19 123,500 22.2 136%
EOG Resources Inc. EOG,+3.00% 90 98,900 19.5 51%
Anadarko Petroleum Corp. APC,+2.51% 23 51,400 17.1 123%
ConocoPhillips COP,+3.73% 37 59,300 17.1 63%
Murphy Oil Corp. MUR,+2.62% 18 40,400 16.5 58%
Apache Corp. APA,+3.31% 25 41,700 6.4 342%
Sources: NavPort, FactSet
Permian Basin
Company Ticker DUCs Avg. 6 month BOE/ Well Avg. 6 month BOE/ Proppant ST Debt/Equity – Dec. 31
EOG Resources Inc. EOG,+3.00% 51 96,900 24.8 51%
Concho Resources Inc. CXO,+1.39% 79 75,600 24.5 48%
Devon Energy Corp. DVN,+6.52% 44 49,800 19.0 186%
Energen Resources Corp. EGN,+1.57% 56 57,400 18.7 27%
Occidental Petroleum Corp. OXY,+2.15% 79 53,000 18.6 34%
Diamondback Resources LLC 32 66,700 18.5
Pioneer natural Resources Co. PXD,+4.34% 32 66,800 15.9 44%
RSP Permian Inc. RSPP,+3.53% 50 74,700 14.9 38%
XTO Energy/ Exxon Mobil Corp. XOM,+1.84% 44 40,600 13.5 23%
Aoache Corp. APA,+3.31% 39 46,900 11.8 342%
Sources: NavPort, FactSet
Williston Basin
Company Ticker DUCs Avg. 6 month BOE/ Well Avg. 6 month BOE/ Proppant ST Debt/Equity – Dec. 31
Hess Corp. HES,+4.38% 29 78,700 42.2 34%
Whiting Petroleum Corp. WLL,+5.18% 16 70,800 25.9 109%
Triangle Petroleum Corp. TPLM,-0.99% 17 66,400 20.5 147%
SM Energy Co. SM,+1.22% 43 58,000 19.0 136%
XTO Energy/ Exxon Mobil Corp. XOM,+1.84% 58 66,100 18.4 23%
Occidental Petroleum Corp. OXY,+2.15% 19 40,800 16.2 34%
Statoil ASA STO,+2.96% 77 48,000 13.1 80%
Oasis Petroleum Inc. OAS,+10.79% 79 50,500 11.8 99%
Continental Resources Inc. CTLR,+0.01% 146 51,400 11.3 N/A
EOG Resources Inc. EOG,+3.00% 118 95,900 10.3 51%
Sources: NavPort, FactSet

This information can be a useful tool as you do your own research into which companies may profit the most from a sustained rebound in oil prices.

It’s important to do your own research and consider a company’s overall financial health before making an investment. You will also need to be ready to make a long-term commitment. Rising prices in the oil market over the past several weeks do not necessarily mean a long-term recovery has begun.

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