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5 Oil Exploration Stocks to Buy After Yesterday's Slump

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Oil prices retreated from their highest settlement of the year yesterday following bearish comments from influential U.S. investment bank The Goldman Sachs Group Inc. GS and growing doubts over a plan among leading producers to limit production. In New York, West Texas crude was down $1.40 (or 3.7%) on Tuesday to close at $36.50 per barrel.

What Triggered the Selloff?

Investors dumped energy stocks after Goldman Sachs termed the commodity price rally 'premature and unsustainable' in a new report. Frowning on prospects for a sustained run, analysts at the financial institution said that oil prices must remain low for supplies to fall and the re-balancing cycle to finish.

Meanwhile, Kuwait's refusal to cooperate on the matter of output freeze also poured cold water on the nascent rally. The Gulf nation's oil minister Anas al-Saleh declared that his country would take part in a comprehensive OPEC-Non OPEC deal only if the agreement involves all 13 members of the international oil cartel - including a defiant and hesitant Iran.

Contract Still Up 40%

Despite yesterday's plunge, West Texas Intermediate (WTI) crude futures are currently up 40% from the 12-year low of $26.21 reached in Feb. While record high inventories - the most in more than 80 years - and robust production could still push the commodity to the depths of multiyear lows again, signs are emerging that oil prices are likely to stabilize and gradually pick up.

Not only is global demand expanding but energy companies have significantly scaled back on plans to explore for and bring out more oil. This should lead to lower future production. The price sentiment should improve further if major producers can hammer out an accord to control volumes.

Finally, the U.S. rig count is continuing with its steady, although slow decline.

Oil services firm Baker Hughes Inc. BHI said in its weekly rig count that U.S. oil producers idled eight more rigs over the past week, bringing the total to 392. This marks its 11th consecutive weekly decline. The oil rig count is now down 75% from a peak set in Oct 2014 and is now at its lowest level in more than six years.

Industry observers view the rig count data as an indicating a break in shale drilling activities in the world's biggest oil consumer.

Ignore Hiccups and Build a Position in Energy

After being under the pump for the most part of two years, crude prices have only started recovering. Consequently, there are investors who see oil's yesterday's slump as a one-off event and decide to build or increase their position in oil-related companies.

However, selecting stocks to buy could be a tricky proposition, especially with oil prices moving like a roller-coaster. We have used the Zacks methodology to find out the best stocks. In particular, we present five exploration and production companies that may deserve attention. Each of them also has a good Zacks Rank.

Antero Resources Corp.AR : Antero Resources is an independent exploration and production company engaged in the exploitation, development and acquisition of natural gas, NGLs and oil properties located in the Appalachia Basin. Sporting a Zacks Rank #1 (Strong Buy), the Denver-based firm has surprised earnings to the upside in each of the last four quarters. What's more, Antero Resources' solid well economics and cost cutting measures should enable the company to better its earnings performance in the future.

Vanguard Natural Resources LLCVNR : An upstream partnership, Houston, TX-based Vanguard Natural Resources looks for oil and gas in the Pinedale and East Haynesville regions. The company's diversified reserve base in multiple U.S. basins, focused investment in high-return areas, comprehensive hedges and competitive cost structure helped it deliver positive surprise in the last quarter with an impressive beat of 226.67%. Vanguard Natural Resources currently has a Zacks Rank #1.

Matador Resources Co.MTDR : Matador Resources, which recently reported upbeat fourth quarter results on strong production, is an independent exploration and production company engaged in the acquisition, finding, and development of unconventional onshore oil and gas properties. The company's operations are concentrated primarily in the Eagle Ford in South Texas, and Permian Basin in Southeast New Mexico and West Texas.

With a multi-year drilling inventory located in some of the industry's best plays, balanced oil/gas portfolio and accretive acquisitions, the Zacks Rank #2 (Buy) Matador Resources' asset portfolio is primed for high production growth and peer-leading returns.

Bill Barrett Corp.BBG : Headquartered in Denver, CO, Bill Barrett is an independent oil and gas developer in the Rocky Mountain region of the U.S. Coming to earnings surprise history, the Zacks Rank #2 company has a good track record: its beaten/met estimates in 3 of the last four quarters at an average rate of 65.42%. Boasting of an impressive production profile, improved operating efficiency and financial flexibility, Bill Barrett is in a strong position to successfully navigate the challenging macro environment.

Rice Energy Inc. RICE : Canonsburg, PA-based Rice Energy is an independent exploration and production company engaged in the acquisition, finding and development of oil and gas properties. The company's operations are concentrated primarily in the Appalachian Basin. Sporting a Zacks Rank #2, Rice Energy has surprised earnings to the upside in each of the last three quarters. The company's strong balance sheet, expanding midstream footprint and lower cost structure more than offsets the lower realizations.

Bottom Line

While all crude-focused stocks stand to benefit from recovering commodity prices, companies in the exploration and production sector are the best placed, as they will be able to extract more value for their products.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days . Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

GOLDMAN SACHS (GS): Free Stock Analysis Report

BAKER-HUGHES (BHI): Free Stock Analysis Report

VANGUARD NATURL (VNR): Free Stock Analysis Report

BILL BARRETT CP (BBG): Free Stock Analysis Report

MATADOR RESOURC (MTDR): Free Stock Analysis Report

ANTERO RESOURCE (AR): Free Stock Analysis Report

RICE ENERGY INC (RICE): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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