The Permian Basin companies are oversold

[dan_s]

"While the fundamental value of the assets remains unchanged, in our view, if anything, the choppy and slightly underwhelming 2Q results of the group to date should be a reminder that there is execution risk in the development of unconventional resource…particularly on a quarterly basis. Despite the noise, our 2017/18 DACF/share expectations for the group have declined by only 2%/1%, with PXD seeing a 7%/11% hit, driven by the deferral of 30 well completions (11% of prior 2017 forecast). Not only do we not view the additional gas as a problem, we estimate that the NAV impact of the extra gas is a positive ~7%. Even without the gas-driven NAV uplift, we see an increasingly positive risk reward for the group, with PXD showing 8%/62% upside to NAV at $50/$60/bbl long-term, and much of the Permian-exposed group showing attractive upside, and view this as an attractive buying opportunity." - The top energy sector analyst at Deutsche Bank, Ryan Todd

Big fund managers hit the Sell Button when something surprises them, especially if a few analysts say it is a negative. This is the most fear I have ever seen over the energy sector, so it doesn't take much to get a selloff, especially when stop loss orders are very tight.

Yes, the gas/oil ratio has gone up. However, the well's are producing crude oil in-line with the pre-drill type curves. As PXD points out on their conference call, the extra gas and NGLs are just more revenue they were not expecting.

If natural gas production keeps going up AND oil production goes down, then we have something to worry about.

Keep in mind that horizontal drilling is in the first inning of a long game. Completion methods seem to improve each quarter.

http://www.barrons.com/articles/pioneer ... yptr=yahoo