3 Promising Shale Drillers With Very Compelling Futures

Source: Concho Resources investor presentation.

This low leverage ratio, which is half what a lot of other oil companies tend to be comfortable with, is due to the fact that unlike those peers Concho Resources didn't use debt to fuel production growth, but instead largely invested within its cash flow. That put the company in a very strong position to weather the downturn as it hasn't been forced to make moves to bolster its balance sheet. Instead, it has focused on getting its costs down to improve drilling returns amid lower prices. That has it positioned to thrive when conditions improve.

3. Laredo Petroleum

Sticking with that same theme, Laredo Petroleum also has a strong portfolio in the core of the Permian Basin to go along with a low leverage profile. That being said, Laredo is much smaller than its peers as its acreage position is under 150,000 net acres. However, the company still expects to be able to drill about 3,000 horizontal wells on it s acreage in the future, which will drive tremendous production growth for years to come. In fact, the company expects its production this year to be 17%-19% ahead of last year's production, despite the fact that it's operating within its cash flow during the second half of this year.

Laredo Petroleum has done a very good job of improving its well returns during the downturn by focusing on drilling better wells. The net result is that the company's latest wells are delivering returns that are on par with those it was earning on wells drilled when oil was much higher. This suggests that when oil prices do rally, Laredo Petroleum can really cash in.

Investor takeaway

The downturn in the oil market has exposed weaknesses in a number of shale drillers that relied on a lot of debt to fuel growth. Having said that, not all companies following that blueprint for growth as Pioneer Natural Resources, Concho Resources, and Laredo Petroleum largely avoided leverage. Because of that, all three have solid balance sheets to go along with very strong positions in a premiere oil basin. It's a combination that suggests all three can create a lot of value when conditions improve in the future.

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Matt DiLallo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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