After OPEC agreed to slash production costs earlier this
week, causing oil prices to surge, two questions have popped up. If this
upward trajectory continues, does this mean a rebound for the
previously ailing shale industry? And if so, will it boost profits and
share prices for the shale
industry?
The answer is a tentative yes on both counts reported Bloomberg News, citing the latest findings by Platts RigData, which analyzes the oil and gas sector. The firm forecasts that average West Texas Intermediate crude prices will leap 23% to $52.18 a barrel in 2017.
Some experts are even more bullish. Speaking to the Wall Street Journal, Eric Lee, an analyst at Citibank, predicted that crude oil will rise to $60 a barrel and remain that way until late 2017. Also, Goldman Sachs Group Inc. (GS) forecasts that the U.S. will be pumping "an additional 600,000 to 700,000 barrels of oil a day by the end of next year," a volume of activity to compensate for the the industry's recent collapse that precipitated a multitude of bankruptcies, added the Journal. (For more, see also: Can Fracking Survive at $60 a Barrel?)
Canadian oil services Sanjel Energy Services echoed Platts' sentiments by predicting a surge in drilling activity for 2017. But company CEO Shane Hooker did qualify his optimism to the news outlet by noting "how much is yet to be seen." He did allow that any gain above $50 a barrel could be construed as "positive."
Platts RigData speculated that for the next year and a half, as the oil and gas sector recovers from its recent bust, most of the new drilling will be based in Texas, Oklahoma, Louisiana and New Mexico, "with a major focus on the Permian Basin," said Bloomberg News. After the initial 18-month period, the next 18-month well activity may move to more gas-filled regions such as the Gulf Coast, South Texas and Appalachia.
Morningstar, too, is very bullish about the shale industry for 2017,
predicting a rally on oil prices. The firm has raised its WTI forecast
to $65 a barrel for 2018, which is the level they believe "is required
to drive a large-scale recovery in U.S. shale activity." And based on
their more optimistic outlook for low-cost production, Morningstar feels
that U.S. shale producers can survive at much lower prices than they
previously assumed.
Here is a top fracking choice for investors to take a look at:
RSP Permian Inc. (RSPP)
Fair Value Estimate: $53
Consider Buying: $31.80
With the company management noting that well production is 20% higher than previous expectations, Morningstar is now forecasting that RSP will generate the "second highest cash margin in 2016" among shale producers. And although Diamondback Energy Inc. (FANG), another shale producer, is trading at a higher EBITDA multiple versus RSP Permian, Morningstar analysts feel RSP Permian is the cheaper of the two stocks. RSP also has a tighter balance sheet and its net debt/EBITDA is expected to "fall below two times in the first half of 2017." (For more, see also: Fracking ETFs or Drilling Service Stocks?)
Fortune weighed in recently with a few other fracking stocks for investors to consider for 2017 providing that the oil rebound continues:
Hess Corp (HES): Even though its EBITDA fell in 2015, a third of its crude oil comes from fracking and Hess boasts a “wide range of oil reserves, including fields in Guyana, which will help diversify its revenue sources in case prices stall at current levels,” said Fortune.
EOG Resources Inc. (EOG): The company also pumps out a lot of oil from fracking, plus its wells are highly productive and active.
Carrizo Oil & Gas Inc. (CRZO): Although the company doesn’t do as much fracking as the others, it does have a “strong portfolio of oil and gas fields."
Halliburton Co (HAL): This company might have suffered a setback last spring when it tried (and failed) to merge with Baker Hughes; however, it’s worth it for investors to look at considering Halliburton “increased its market share during the oil slump, and it should thrive when U.S. producers go into growth mode again.”
industry?
The answer is a tentative yes on both counts reported Bloomberg News, citing the latest findings by Platts RigData, which analyzes the oil and gas sector. The firm forecasts that average West Texas Intermediate crude prices will leap 23% to $52.18 a barrel in 2017.
Some experts are even more bullish. Speaking to the Wall Street Journal, Eric Lee, an analyst at Citibank, predicted that crude oil will rise to $60 a barrel and remain that way until late 2017. Also, Goldman Sachs Group Inc. (GS) forecasts that the U.S. will be pumping "an additional 600,000 to 700,000 barrels of oil a day by the end of next year," a volume of activity to compensate for the the industry's recent collapse that precipitated a multitude of bankruptcies, added the Journal. (For more, see also: Can Fracking Survive at $60 a Barrel?)
Canadian oil services Sanjel Energy Services echoed Platts' sentiments by predicting a surge in drilling activity for 2017. But company CEO Shane Hooker did qualify his optimism to the news outlet by noting "how much is yet to be seen." He did allow that any gain above $50 a barrel could be construed as "positive."
Platts RigData speculated that for the next year and a half, as the oil and gas sector recovers from its recent bust, most of the new drilling will be based in Texas, Oklahoma, Louisiana and New Mexico, "with a major focus on the Permian Basin," said Bloomberg News. After the initial 18-month period, the next 18-month well activity may move to more gas-filled regions such as the Gulf Coast, South Texas and Appalachia.
Here is a top fracking choice for investors to take a look at:
RSP Permian Inc. (RSPP)
Fair Value Estimate: $53
Consider Buying: $31.80
With the company management noting that well production is 20% higher than previous expectations, Morningstar is now forecasting that RSP will generate the "second highest cash margin in 2016" among shale producers. And although Diamondback Energy Inc. (FANG), another shale producer, is trading at a higher EBITDA multiple versus RSP Permian, Morningstar analysts feel RSP Permian is the cheaper of the two stocks. RSP also has a tighter balance sheet and its net debt/EBITDA is expected to "fall below two times in the first half of 2017." (For more, see also: Fracking ETFs or Drilling Service Stocks?)
Fortune weighed in recently with a few other fracking stocks for investors to consider for 2017 providing that the oil rebound continues:
Hess Corp (HES): Even though its EBITDA fell in 2015, a third of its crude oil comes from fracking and Hess boasts a “wide range of oil reserves, including fields in Guyana, which will help diversify its revenue sources in case prices stall at current levels,” said Fortune.
EOG Resources Inc. (EOG): The company also pumps out a lot of oil from fracking, plus its wells are highly productive and active.
Carrizo Oil & Gas Inc. (CRZO): Although the company doesn’t do as much fracking as the others, it does have a “strong portfolio of oil and gas fields."
Halliburton Co (HAL): This company might have suffered a setback last spring when it tried (and failed) to merge with Baker Hughes; however, it’s worth it for investors to look at considering Halliburton “increased its market share during the oil slump, and it should thrive when U.S. producers go into growth mode again.”
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