Since October, global oil prices have crashed, losing roughly a quarter of their value. The stumble has become one of the biggest declines for the commodity since a price collapse in 2014.
On Monday, West Texas Intermediate crude, the US benchmark, was holding just above the $55-level, not far from the one-year low of $54.75 touched on November 13. WTI prices have suffered weekly losses in each of the past six weeks, falling by around 26% over that period from levels above $75 per barrel.
WTI oil chart
Increasing worries over soaring US output has been cited as the culprit for the breathtaking price plunge. Domestic oil production—driven by shale extraction—reached another record last week, hitting 11.7 million barrels per day (bpd), according to the Energy Information Administration (EIA). Most analysts expect US output to climb above 12 million bpd within the first half of 2019, making the US the world’s biggest oil producer, ahead of Russia and Saudi Arabia.
The US oil rig count, an early indicator of future output, is currently at its highest in over three years, suggesting that crude production from shale basins is expected to continue powering ahead. Indeed, the EIA projected that US crude oil output from its seven major shale basins will hit a record high of 7.94 million bpd in December.
The surge in US oil output, combined with worries over slowing global demand, will likely lead the Organization of the Petroleum Exporting Countries (OPEC) to slash production starting next month. OPEC’s de facto leader, Saudi Arabia, wants the cartel to cut output by about 1.4 million bpd to tighten supply and prop up prices.
Taking all this into consideration, now is an ideal time for investors to go shopping for shares of shale oil drillers. Below we consider three stocks poised to outperform in the months ahead.
In order to weed out the thousands of publicly traded, energy-related names, we’ll only touch on companies in the sector that are US-based and currently have a market capitalization of $2 billion or more.
1. Anadarko Petroleum
Anadarko Petroleum (NYSE:APC) is one of the world’s largest independent oil and gas exploration and production companies. Its asset portfolio includes positions in onshore resource plays in the Appalachian basin, the southern US and the Rocky Mountains region.
The Woodlands, Texas-based company reported mixed results for the third quarter on October 30, as earnings fell short of analyst estimates. Despite the slight miss, Anadarko’s quarter was much stronger than the headline number indicated. Revenue topped forecasts in the July-to-September period, as onshore oil sales hit a record and per-barrel margins improved.
Onshore oil sales volumes averaged a record 175,000 bpd during the quarter, up 37% from a year ago. Fueling Anadarko’s production surge was its position in the Delaware Basin, which extends from West Texas to parts of New Mexico, where output jumped to 70,000 bpd, up 83% from the year-ago period.
The surge in onshore oil production, along with lower costs thanks to improved infrastructure access, helped boost Anadarko’s margins to $33.68 per barrel, 58% higher from a year earlier. That makes Anadarko a compelling buy opportunity in the months ahead.
While the stock is down almost 18% since the start of October, shares, which closed yesterday at $55.61, are still up nearly 4% in 2018. In comparison, the broader industry represented by the Energy Select Sector SPDR ETF (NYSE:XLE) has declined by around 7% this year.
2. Whiting Petroleum
So far, 2018 has been a fantastic year for Whiting Petroleum (NYSE:WLL), which is the leader in oil production in the Bakken Shale Deposit in North Dakota.
The Denver-based company reported earnings and revenue on October 30, that easily topped analysts’ third quarter forecasts, as higher domestic oil prices and production growth boosted results.
Whiting’s third-quarter production averaged 128,680 barrels of oil equivalent per day, up 13% from a year ago. The company expects its production to increase 5% in the fourth quarter, according to Chief Executive Bradley Holly.
The oil & gas exploration company is up around 20% so far this year, making it one of the best performers in the sector, despite shares, which yesterday closed at $31.57, having fallen sharply over the past six weeks. Whiting’s stock has lost about 40% since the beginning of October, mirroring the rout in oil prices.
Looking ahead, Whiting’s share price is expected to benefit from healthy production growth from the Bakken, where the company completed 45 wells during the three months ended September 30. With more than 1,000 top-tier drilling locations remaining in the Bakken, the oil driller has plenty of room to continue growing at a fast pace in the years to come.
3. Occidental Petroleum
Occidental Petroleum (NYSE:OXY) is the largest oil and gas producer in the Permian basin, making it a major player in the US energy sector. US shale oil production from the Permian has nearly doubled in the past three years.
The Houston-based integrated oil-and-gas producer reported better-than-expected, third-quarter earnings on November 5, thanks to a surge in production from the Permian Basin. The company said output from its Permian Resources unit jumped more than 60% from a year-earlier, to 225,000 barrels of oil equivalent per day (boe/d).
CEO Vicki Hollub recently noted that the Permian is the epicenter of Occidental’s business, and it will continue to be the company’s focal point for years to come. Shares of Occidental, known as Oxy, which ended yesterday at $73.36, are down 10.7% since the start of October. For the year, the stock is roughly flat.
The company looks set to benefit from its stellar Permian operations, where it is the region’s largest landholder. Oxy has taken steps to mitigate potential risks related to supply constraints due to the pipeline bottlenecks in the region. This makes it well positioned to continue increasing its output, while taking advantage of stronger oil prices, which will help fuel future earnings growth.