I could not stress to you any more deeply the major and primary points I have been making about crude oil production and capital expenditure absolutely controlling the energy space right now and through 2013. Today is the perfect day to point that out again, through the quarterly reports of EOG Resources (EOG) and Pioneer Natural Resources (PXD).
The action in both of these stocks has been a case study for oil investors in the precise factors I've been working so hard to beat into your head: 2013 is all about crude production and capex for that production.
Where are you getting your crude? How much is it costing you? And how much will it continue to cost you? When those numbers add up and the result is efficiency and growth, you've got a stock that you can confidently hold outside of all the other "known knowns" of stock metrics .
There was another beat in the fourth quarter, but that's hardly what interested me in its report. EOG's continuing stellar production numbers and continuing guidance for its operations in the Eagle Ford are turning that area into the most compelling play for U.S. crude independence, even outstripping the Bakken, and EOG has a major stake there. EOG is guiding production at a 28% increase in 2013, and the initial production numbers confirm that Eagle Ford continues to hit high percentages of long-producing assets. EOG will tighten spacing and add 400 wells. Eagle Ford is not just another U.S. shale oil "play" -- it is a game-changer.
This makes EOG still a raging buy, even after their big move in the last six months. As increasing and sticky oil prices hover internationally close to $120 a barrel, EOG will mint money through 2014.
Pioneer Natural provides a great contrast, as it is a bit more over its skis than EOG. But it is also attempting to play the volume game to its advantage.
But Pioneer's big play is in the Permian Basin, which has required more capex to find resource growth and continues to marginally disappoint on production growth. In its latest report, Pioneer has increased its capex guidance to $3 billion, leading to the secondary stock offering of 8 million shares on tap overnight. While production from one of its big Wolfcamp developments is increasing, it's not the type of blowout growth that EOG, for example, has guided on in the Eagle Ford.
Still, investors liked the report well enough, and they believe in the potential of Pioneer's Permian assets, bidding the stock up 3.5% today. This is a move I'd rather fade, not because I don't believe in the production guidance but because I want to be investing in the strongest cycle, which is clearly in the Bakken and Eagle Ford.
But the important takeaway is again production growth. While your homework might lead you elsewhere than these two, production growth still must be the No. 1 thought in choosing the right oil company in 2013.