• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Energy

An Amazing Re-Rating in Oil

These independents aren't reckless wildcatters anymore.
By JIM CRAMER May 21, 2014 | 11:45 AM EDT
Stocks quotes in this article: XEC, EOG, PXD, APC, CLR, CRZO

Why do I keep this North American renaissance -- one of my key themes for Get Rich Carefully -- right in front of you? Because this move is one of the most amazing re-ratings I have ever seen. It's based not just on the strength in oil, which seems to have established a price that's very sticky above $100 a barrel even at the discounted West Texas Intermediate price. It's also based on production growth.

For the longest time these stocks -- Cimarex (XEC), EOG Resources (EOG), Pioneer Natural Resources (PXD), Anadarko Petroleum (APC), Continental Resources (CLR), Carrizo (CRZO) and many others that I write and talk about each day -- were regarded as boom-bust affairs. They would rise and fall with every tick of oil.

That's no longer the case. Sure, the rising price of oil is an important tailwind. But far more important is the miraculous production growth that six key shale plays are providing. The Eagle Ford and Permian in Texas, the Bakken in North Dakota, the Utica in Ohio, the Marcellus in Pennsylvania and the Niobrara in Colorado are proving far more bountiful than we thought even two years ago.

Some of that is the result of improved drilling methods. A conventionally drilled oil well costs about $2.5 million a pop. These new horizontal fractured wells are about $7.5 million each. But the oil is running far in excess of what many thought possible, and the depletion is running at a much slower rate than was thought.

When your biggest problem is your inability to pump all the oil or natural gas that you can because of a shortage of pipeline space, then you know this move could last far longer than people expect.

Many of the oil companies are producing staggering rates of year-over-year production growth -- twenty-, thirty- and even forty-percent increases -- particularly those in the Permian and Eagle Ford. That's right, they are giving you software-as-a-service kind of growth except the profits, the actual profits, booked and reported in real earnings per share are extraordinary.

I don't mean to give short shrift to the companies more vested in natural gas. Perhaps because the price of natural gas is -- for right or for wrong -- a world price, the companies that are drilling for the fuel are getting tremendous margins. The companies that are producing condensates, the building blocks for plastic, are also making huge amounts of money.

Right now, my favorites are EOG and Anadarko. I like EOG because it has among the best production growth in the Bakken, Eagle Ford and Permian, especially the prolific Delaware basin. Anadarko appeals to me because it now has removed all litigation overhang that has plagued it for the last few years. That makes it a natural takeover target. I would never recommend a stock on a takeover basis if the fundamentals weren't up to snuff. I think APC should be at $120 per share just on production growth.

These companies aren't reckless wildcatters. Those days are over. They are cautious and methodical but, unlike the cautious and methodical majors, these independents can move the needles with each find. That's what is so amazing about this re-rating: you are getting growth at a reasonable price, the fastest growth and the most reasonable price that you are going to find in the market today.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long APC.

TAGS: Investing | U.S. Equity | Energy

More from Energy

Welcome to Second Semester on Wall Street, Here's How to Make the Grade

Jim Collins
Jul 1, 2022 4:36 PM EDT

Think you can own big tech? You might just get an 'F' for that. Here's what will get you on the other side of this year.

The Market, It's Such a Gas!

Helene Meisler
Jul 1, 2022 6:00 AM EDT

Commodities like gas came down and people finally noticed. Let's check on that diesel, 30-year bonds and more.

Want to Save Your Retirement Fund? Tune Out the Talking Heads

Jim Collins
Jun 30, 2022 3:14 PM EDT

The first half of this year has been ugly. But we could have seen what would happen to Netflix, Tesla and Meta...

OPEC+ Opens the Spigot, but Are We Just Repeating Mistakes of 2008?

Maleeha Bengali
Jun 30, 2022 12:26 PM EDT

As we see this increase in oil production get rubberstamped, we must remember that demand never moves in a straight line.

Commodity Bull Runs Have Proven Unsustainable; Can This Time Be Different?

Carley Garner
Jun 30, 2022 12:00 PM EDT

It's possible, but unlikely, as we've yet to see the commodity complex hold gains forged in a bull market.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 07:59 PM EDT PAUL PRICE

    Very good quarterly numbers from Bassett Furniture (BSET)

    Bassett Furniture (BSET) blew right through analys...
  • 04:41 PM EDT PAUL PRICE

    First Half Results - Putrid Second Half Results - Likely to Be Much Better

    It's great that we're done with June. 2022 marked...
  • 04:51 PM EDT PAUL PRICE

    We Should Be in for Better Starting Soon

    Window dressing Thursday, the last day of the...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login