3 Permian Basin Energy Companies That May End Up Huge Winners

By Lee Jackson Updated Jan 13, 5:27PM EST · Published Nov 6, 10:55AM EST

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3 Permian Basin Energy Companies That May End Up Huge Winners — © Thinkstock

After a nice run off the lows earlier this year, the price of oil seems to be hitting a roadblock around the $60 level, and it appears that, barring an international incident, it may be stuck there for a while. In a new research report, SunTrust Robinson Humphrey remains vocal in its positive view of the Permian Basin in West Texas. It has three top stocks to buy now.

The SunTrust team feels that some parts of the Permian have the best well returns in the United States. With a much lower benchmark price than this time just one year ago, well returns become a very crucial metric. Three top companies are among the analyst’s favorite nearer-term plays. All are rated Buy

Diamondback Energy

This stock remains a favorite of the SunTrust analysts, and with good reason. Diamondback Energy Inc. (NASDAQ: FANG) is an independent oil and natural gas company headquartered in Midland, Texas, 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.

SunTrust cites the company’s top-tier asset base, solid accretive additions and financial discipline, which the firm thinks allows for not only continued solid cash flow, but could put the company in play as a takeover target. It also notes that 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.

SunTrust’s price target on the stock is $90. The Thomson/First Call consensus price target is $86.46. The shares closed Thursday at $77.09.

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Energen

This oil and gas exploration and production company with headquarters in Birmingham, Ala., is another top near-term favorite at SunTrust. Energen Corp. (NYSE: EGN) has 1.1 billion barrels of oil-equivalent proved, probable and possible reserves and another 2.2 billion barrels of oil-equivalent contingent resources. These all-domestic reserves and resources are located primarily in the Permian Basin. The company actually has been active in the region since the late 1960s and has made numerous major acquisitions in the past five years.

The company posted solid third-quarter numbers recently and may be ready to lift-off from here. In addition, Wall Street has applauded that Energen expects to carry just $800 million in net debt this year, which is a relatively small amount for $4.5 billion oil company. It has used asset sales to reduce corporate debt instead of using all the cash proceeds for production growth. Last year the company sold its legacy natural gas distribution business, Alagasco, for $1.6 billion, while more recently it sold $384 million in natural gas properties in the San Juan Basin. In both cases those funds were largely used to reduce debt.

The $70 SunTrust price target is higher than the consensus target of $67.14. Shares closed Thursday at $59.76.

Pioneer Natural Resources

Many Wall Street analysts love this stock as a pure crude oil play. Pioneer Natural Resources Co. (NYSE: PXD) was the ultimate shale-oil growth story for the past five years, but it was eviscerated in the sell-off that started over a year ago. The stock has rebounded nicely since the summer but is still down almost 20% since April, and it could be offering aggressive investors a potential entry point that could be very timely.

Pioneer is a huge player in the Permian basin and the Eagle Ford in Texas, and the company owns more than 20,000 locations in the world’s second largest oil reservoir in the Midland Basin. SunTrust was very positive on the third-quarter results and noted that the company reiterated annual production growth guidance of more than 15% while cutting the number of rigs expected to operate.

Pioneer investors receive a tiny 0.0% dividend. The SunTrust price target is $176, and the consensus figure is lower at $166.08. Pioneer closed trading on Friday at $145.42.

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There is still a long way to go for the energy sector, and the sledding may remain tough the rest of this year and in 2016. Investors willing to carve out some capital and plan on holding positions for up to 18 months could be well rewarded.

About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.