Thursday, January 15, 2015

2 Permian Basin Oil Stocks For A Down Market

This article was first published by Seeking Alpha on December 30, 2014.

By Sarfaraz A.Khan

The 48% drop in WTI oil prices over the last six months has threatened the future prospects of several oil producers, but Diamondback Energy (NASDAQ:FANG) and  Energen (NYSE:EGN), two Permian Basin operators, are in a good position to weather a downturn. 

Texas's Permian Basin producers in general enjoy several advantages over their peers working on other major oil and gas producing regions, such as North Dakota's Bakken Shale formation and Colorado's Niobrara shale. The Permian Basin is dominated by older fields where some oil companies, such as Chevron (NYSE:CVX), have been pumping oil for more than 100 years. The operating costs here are one of the lowest in the industry, with WTI breakeven costs of between $45 and $60 a barrel, as per Topeka Capital Market's Dec. 8 report.

Diamondback Energy owns 85,000 net acres at Midland Basin, the core region of the Permian Basin that offers some of the best economics. Due in part to this, the company has reported lower operating expenses than its Permian Basin peers. Last year, Diamondback Energy's operating expenses, which include general and administrative, production and ad valorem taxes and lease operating expenses, came in at $17.24 a barrel. That's lower than the industry's average of $16.88/barrel of oil equivalents. In the first six months of this year, Diamondback Energy's operating expenses were 25% lower than the average of its Permian Basin peers.

It also helps that around 75% of Diamondback Energy's production consists of oil, greater than the average of 55% of its competitors. This allows … read full article at Seeking Alpha.