Most investors who own energy stocks are well aware of the Permian Basin. It reaches from just south of Lubbock, Texas, to just south of Midland and Odessa, extending westward into the southeastern part of New Mexico. Several component basins comprise the greater Permian Basin, and of these, Midland Basin is the largest, Delaware Basin is the second largest and Marfa Basin is the smallest.
New data shows that drilling rig growth in the United States is up a stunning 125% since the trough was put in, with 449 rigs being added back to production. A stunning 43% of those rigs are in the Permian Basin and it continues to be the growth driver for U.S. energy production.
Stifel is one of the Wall Street firms that is extremely bullish on the region, and it has five top stock picks that make good sense for investors looking for value now, especially with oil prices lingering under the important psychological $50 per barrel level.
Besides being one of the top energy plays in the Permian Basin, this is also a Wall Street favorite. Concho Resources Inc. (NYSE: CXO) is an independent oil and natural gas company engaged in the acquisition, development and exploration of oil and natural gas properties. Its principal operating areas are located in the Permian Basin of southeast New Mexico and West Texas, where it owns 600,000 net acres. The company has 624 million barrels of oil equivalent of proven reserves, of which 57% is classified proved developed and 59% is oil.
The company is targeting to deliver 20% oil production growth this year, while investing within its cash flow, a move that many on Wall Street see as very positive. By carefully managing growth and spending, the company looks to be in position to restart the double-digit production growth next year, while many peers are struggling to generate enough excess cash flow to boost output.
Top Wall Street analysts feel that the company’s debt load is below average, as is the firm’s commodity price sensitivity, both of which are big positives for investors.
The Stifel price target for the stock is $206, and the Wall Street consensus target is lower at $164.82. The stock closed most recently at $128.88 a share.
This is another favorite of Wall Street analysts and another top Permian Basin play. Diamondback Energy Inc. (NASDAQ: FANG) is an independent oil and natural gas company headquartered in Midland, Texas, and focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin. Diamondback’s activities are primarily focused on the horizontal exploitation of multiple intervals within the Wolfcamp, Spraberry, Clearfork and Cline formations.
Wall Street analysts have noted in the past the company’s top-tier asset base, solid accretive additions and financial discipline, which they think allows for not only continued solid cash flow, but could put the company in play as a takeover target. Diamondback continues to drill some of the most economical wells in the United States as efficiencies improve, costs decrease and activity remains in the better regions.
Earnings estimates for the company continue to go higher, and many on Wall Street feel Diamondback can deliver total 2017 numbers that come in above current consensus estimates.
Stifel has a $123 price target on the stock. The consensus target is $130.72, and shares last closed at $100.34.