If one area in the country continues to draw capital expenditures and growth, it’s the Permian basin in West Texas. With a huge new find, and many of the top exploration and production companies increasing their presence, many on Wall Street are confident that 2017 will be another banner year. In fact, with over $21 billion in value spread over an incredible 130 transactions this year, the oil industry and investors are looking to the region to provide volume growth.
A new research report from Deutsche Bank’s outstanding analyst Josh Silverstein and his team makes the case that the Permian has become to go-to spot for exploration and production companies. They noted this in their report:
While the Permian renaissance began before 2016, this year may have been the key turning point for the basin as several producers doubled down or turned the portfolio over to make the basin the cornerstone asset for the foreseeable future.
They also note that a large percentage of the companies in the firm’s research coverage universe are players in the region. We chose four that are rated Buy that look like solid long-term plays for investors.
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. As of December 31, 2015, its total estimated proved reserves were 623.5 million barrel of oil equivalent.
The company is targeting to deliver 20% oil production growth next 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.
The Deutsche Bank price target for the stock is $165, and the Wall Street consensus target is lower at $155.97. The shares closed Monday at $129.50, down 3.5% on the day.
This remains another favorite of Wall Street analysts and is also a 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 2016 numbers that come in above current consensus estimates.
Deutsche Bank has a $120 price target on the stock. The consensus price objective is listed at $118.34. The stock closed Monday at $96.75 a share.
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