Investors must be keeping a close watch on energy stocks since oil is trading at considerably higher prices again, brightening prospects for upstream companies. Companies that are well-poised to gain are Diamondback Energy, Inc. FANG, Pioneer Natural Resources Company PXD and Matador Resources Company MTDR.

High Oil Price

West Texas Intermediate (WTI) crude is approaching the $85 per barrel mark, representing an extremely favorable price for conducting exploration and production activities. In its latest short-term energy outlook, the U.S. Energy Information Administration (“EIA”) has projected the average spot price of WTI for 2023 at a handsome $77.79 per barrel.

Rising global energy demand amid Saudi Arabia’s extended crude production cut, which is voluntary, is aiding the recent spike in oil price and will likely continue to back the commodity price.

Rising Production

Increasing crude price will likely provide incentives for higher drilling activities, which in turn will increase production volumes. This is reflected in EIA’s projection for increased production for this year and next year. For 2023, EIA estimated oil production in the United States at 12.8 million barrels per day (Bbl/D), suggesting an increase from 11.9 million Bbl/D last year. For 2024, EIA expects U.S. crude production to rise to 13.1 million Bbl/D.

3 Stocks to Gain

Given the overall backdrop for upstream operations to be profitable, it would be ideal for investors to keep a close watch on companies having exploration and production activities in premium shale resources like the Permian – the most prolific basin in the United States.

Here, we present three upstream stocks, each carrying a Zacks Rank #3 (Hold).

Diamondback Energy is a leading pure-play Permian operator. The firm expanded its footprint in the Midland basin after acquiring all leasehold interest and associated properties of Lario Permian, LLC — a wholly-owned affiliate of Lario Oil & Gas Company. FANG also has an investment-grade balance sheet. Diamondback has revised upward its oil production guidance for this year to 260 to 262 Mbo/d from the prior projection of 256 to 262 Mbo/d.

Pioneer Natural has a strong presence in the low-cost oil-rich Midland basin — a sub-basin of the broader Permian. The upstream energy player has a massive inventory of premium wells that will likely generate significant returns for the company.

Pioneer Natural is focused on returning capital to shareholders. This includes a substantial variable dividend along with a strong base dividend. PXD also employs opportunistic share repurchases to reward shareholders.

Pioneer Natural has considerably lower exposure to debt capital than the composite stocks belonging to the industry. This reflects its strong balance sheet on which the firm can rely to sail through the volatile energy businesses.

Solid oil prices are a boon for Matador Resources’ upstream operations. This is because the company has a strong presence in oil-rich core acres of the Wolfcamp and Bone Spring plays in the Delaware Basin. Favorable oil price is likely to aid it in increasing production volumes. For 2023, Matador revised its total oil production guidance to 26.8-27.5 million Bbl from the prior view of 26.4-27.3 million Bbl.
Pioneer Natural Resources Company (PXD): Free Stock Analysis Report

Diamondback Energy, Inc. (FANG): Free Stock Analysis Report

Matador Resources Company (MTDR): Free Stock Analysis Report

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