Every week, the numbers have added up as the U.S. drilling rig count continues to drop. With that decline there has also been a significant drop in production, and as things stand now, the production decline should continue into the fourth quarter of this year. In a new research report, Cowen sees the rig count starting to climb in 2016 in an effort to maintain 2015 exit production levels.
The Cowen team has put together a ton of data from energy firms, and they have determined that another 250 to 300 rigs are required to meet 2016 Wall Street growth targets. The analysts’ base model assumes an additional 300 rigs will be added through end of 2016 from current levels. So the energy story remains a cautious, but potentially positive one to buy going forward.
The Cowen analysts stay defensive and have four stocks to buy now. They are taking advantage of pullbacks in share prices and have two companies they favor for direct exposure to crude oil.
The Cowen team likes this company on the steep pullback in price over the past month. Anadarko Petroleum Corp. (NYSE: APC) is one of the world’s largest independent exploration and production companies, with exploration or production work in all major domestic drilling areas, as well as in South America, Africa, Asia and New Zealand. As of year-end 2014, the company had approximately 2.86 billion barrels-equivalent of proved reserves.
Top Wall Street analysts see the company growing at or above 15% total production from the higher margin portions of their portfolio, which in turn could end up boosting the firm’s West Texas Intermediate (WTI) price realizations. In other words, more oil equals more money.
Recent chatter has suggests the company may be a good bolt-on fit for Exxon. Anadarko has outstanding assets in the Gulf of Mexico, U.S. shales and Africa, including a large presence in gas discoveries off the coast of Mozambique.
Anadarko investors are paid a 1.3% dividend. The Cowen price target on the stock, which is rated Buy, is a very impressive $119. The Thomson/First Call consensus price target is much lower at $101.91. The stock closed Wednesday at $83.03.