"It's a madhouse," said J.E. Wolf III in a recent Bloomberg
article. "I've been sellingreal estate here for 43 years, and
I've never seen it like this."
Teenagers fresh out of high school are earning $75,000
annually driving trucks.
Locals have to postpone weddings because there are not enough
hotel rooms available for guests. And when they are available, a
room you might expect to run you $50 is going for $300 a
Welcome to Midland, Texas -- also known to some as "Boomtown
Midland was the fastest-growing metropolitan area in the
United States in 2012, according to the U.S. Census Bureau. The
totalunemployment rate for the town is 3.3%, which is less than
half the national average of 7.7%.
Based on per-capitapersonal income , Midland was also the
second-wealthiest metropolitan area in the United States, bested
only by the hedge-fund enclave of Bridgeport, Conn.
That's right. Midland, with a population of 151,000 people, is
generating more per-capita income than San Francisco, San Jose
(Silicon Valley ) or Washington, D.C.
How is this possible?
The answer is simple: Midland happens to sit on top of the
Permian Basin, one of the largest areas of proven oil reserves in
the United States as well as the ninth-largest reserves of
And there are plenty of reasons to think this boom is just
For example, Midland's district was issued more new drilling
permits in 2012 than any other area in the state.
In fact, the number of permits issued in Midland County has
soared 200% since 2009 -- totaling more than 1,050 in 2012. As
more of these new wells begin production, the potential forprofit
This is a trend we've seen play out before. Nathan Slaughter,
StreetAuthority's expert resourceanalyst , has been covering the
boom in North Dakota's Bakken Shale for years. Two big players in
Whiting Petroleum (
Heckmann Corp. (
, are featured in the real-money portfolio of his Scarcity and
Real Wealth newsletter.
Yet, unlike the more established Bakken Shale play, energy
production from horizontal drilling and fracking activities in
the Permian is still relatively new.
Ed Parker is a regional sales manager for Goliath Industries, a
company that furnishes housing for oilfield workers. He recently
compared the two plays in the Fort Worth Star-Telegram:
"The Permian is about a year and a half behind North Dakota.
We're on the front edge of the boom," said Parker.
So how can investors get in on the action?
There are several options. There are some big names operating in
the region, including
Pioneer Natural Resources (
Devon Energy (
And while these are all great companies, I decided to dig a
little deeper. In doing so, I discovered a smaller, relatively
unknown company with a big presence in the Permian.
The company I'm talking about is
Concho Resources (CXO)
Now, when I say that Concho is a smaller company, Imean relative
to some of its energy behemoth peers. Concho'smarket cap is $9.7
billion. Compare that with Chevron'smarket cap of $233 billion
and you'll see what I mean.
Unlike some of its larger, more diversified peers, Concho is
basically a "pure-play" bet on the future of the Permian
Since 2009, Concho has drilled more wells in the Permian than
any other company. Devon Energy, which I recently wrote about
comes in a close second.
Concho has increased production more than 20-fold since 2005.
And its proven reserves have increased more than 30-fold. With
its most recent acquisitions, particularly the $1.6
billionacquisition of Marbob Energy in 2010, Concho is well
positioned to continue posting double-digit growth throughout the
next several years.
Risks to Consider:
While the Permian Basin is without a doubt one of the most
attractive horizontal drilling plays in the United States,
Concho's pure-play focus and lack ofdiversification could result
in reduced profits as the play matures.
Action to Take -->
Unlike competitors Chevron and Pioneer, Concho does not currently
pay adividend . It is also slightly more expensive, with a
forward price-to-earnings (P/E ) ratio of 15. While I plan to
keep an eye on Concho, I would like to see it come down in price
a bit and reduce itsdebt load before I would rate it a "buy."
In the meantime, investors interested in gaining exposure to
the Permian Basin should take another look at Devon, which, with
a current P/E ratio of 11 and low price-to-book ratio of 1.1, may
be a more attractive buy at this time.