Increasing Profit Margins in Bakken and Eagle Ford
Posted: Tue Sep 02, 2014 6:41 pm
This is from one of the better newsletters I receive.
"We are seeing increased profits for the players in the Bakken and Eagle Ford shale formations. Even though oil prices have dropped from the $106 per barrel range to the $94 range, earnings growth is coming in at very good rates. Some of the oil price decline is due to the US dollar gaining strength. This is primarily due to the geopolitical tension around the world and should ease as things settle down. Our refineries are also running at a very high production rate. As I mentioned earlier, oil in storage is basically flat even with the increased production. This is very good news for the E&P companies we follow. In addition natural gas prices have moved up to the $4.00 range. This is partially due to a pickup in industrial demand, but primarily due to the fact we are not going to be able to adequately replace all of the gas in storage that was used up by last winters extended cold spell and so we will be entering this years cold season with lower than normal levels of gas in storage. This is very good news for the E&P companies we follow. Not only are oil prices holding in the $95 to $100 range, but NGL prices are rising as well. For these reasons we view any pullback in stock prices of the E&P companies as a buying opportunity. Several names we recommend in this area are Continental Resources (CLR), EOG Resources (EOG), Oasis Petroleum (OAS), Whiting Petroleum (WLL) and a new add, SM Energy Company(SM). For an investment on the Marcellus shale, Gastar Exploration (GST) and Range Resources (RRC) are where we are putting our money. Range Resources just announced major production increases in a very BTU rich gas area with a large percent of production in NGL’s. Also, Gastar is seeing good production in their Utica leases and has expanded into oil bearing formations as well.
One of the most significant themes I heard at EnerCom is that profit margins are expanding because well costs and lease operating expenses are falling. Gathering and transportation costs are also coming down.
"We are seeing increased profits for the players in the Bakken and Eagle Ford shale formations. Even though oil prices have dropped from the $106 per barrel range to the $94 range, earnings growth is coming in at very good rates. Some of the oil price decline is due to the US dollar gaining strength. This is primarily due to the geopolitical tension around the world and should ease as things settle down. Our refineries are also running at a very high production rate. As I mentioned earlier, oil in storage is basically flat even with the increased production. This is very good news for the E&P companies we follow. In addition natural gas prices have moved up to the $4.00 range. This is partially due to a pickup in industrial demand, but primarily due to the fact we are not going to be able to adequately replace all of the gas in storage that was used up by last winters extended cold spell and so we will be entering this years cold season with lower than normal levels of gas in storage. This is very good news for the E&P companies we follow. Not only are oil prices holding in the $95 to $100 range, but NGL prices are rising as well. For these reasons we view any pullback in stock prices of the E&P companies as a buying opportunity. Several names we recommend in this area are Continental Resources (CLR), EOG Resources (EOG), Oasis Petroleum (OAS), Whiting Petroleum (WLL) and a new add, SM Energy Company(SM). For an investment on the Marcellus shale, Gastar Exploration (GST) and Range Resources (RRC) are where we are putting our money. Range Resources just announced major production increases in a very BTU rich gas area with a large percent of production in NGL’s. Also, Gastar is seeing good production in their Utica leases and has expanded into oil bearing formations as well.
One of the most significant themes I heard at EnerCom is that profit margins are expanding because well costs and lease operating expenses are falling. Gathering and transportation costs are also coming down.