• 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

Oil Will Turn Soon, But Not All Oil Companies Will Follow

A look at three discipline names to consider as oil begins to turn around.
By DANIEL DICKER Aug 14, 2017 | 02:00 PM EDT
Stocks quotes in this article: EOG, XEC, APA

We're finally approaching a time when oil stocks are going to be investable again. We've endured a long winter, where bad business practices have been represented with equally bad share prices. But finally, many of the weakest oil companies are out of money and are being forced to cut costs and production targets.

This is what we've been waiting for. We've been waiting for the time when the oil company "wheat" will separate itself from the "chaff." That time is now.

I believe oil prices will get constructive soon, overcoming their year-long range between $43 and $54 dollars a barrel. We can see three factors that are going to push oil out of this range to the upside. First, we see oil stockpiles falling under the 5-year average, signifying the rebalancing is coming. Second, we see rig counts beginning to roll over, making the projections for increased production in 2018 far too optimistic. And third, major rollbacks of capex from oil producers, announced in their second-quarter reports, are going to accelerate both of these trends.

But don't get too excited -- there is a big, big problem with just buying any oil stock. We've seen, over and over again, that higher oil prices do not translate into higher stock prices equally -- we have to be very, very selective in which stocks to buy in order to take advantage of the higher oil prices to come. Many of the most leveraged names in shale have continued to sink lower, despite oil prices that have stabilized near to $50.

We're looking for a few good names.

Those names will come from companies that have exhibited discipline -- and haven't pursued higher production at all costs. We want companies that haven't turned the spigot up to full blast in an oil environment that promised only 10 dollars of profit per barrel -- if that much -- instead of the 30 or 40 dollars of profit that oil prices prior to 2014 would have brought. We want companies that have drilled core acreage at a steady but slow pace, and have years of core acreage yet to develop, instead of those that have perhaps another year or two of quality spots to drill, before being forced to move to the 'B-team' or even the 'C-team' of acreage sites.

I give you three ideas to look at.

EOG Resources (EOG) has diligently continued to pursue their 'premium drilling' plans, only considering acreage with a proven profitability for development. They've continued to be a lone leader in free cash flow for fracking operations, a difficult benchmark in a high capex business like shale. Even though their stock is hardly at a discount, they still represent a 'best in breed' opportunity that will respond to higher oil prices.

Cimarex (XEC) has been a core holding of mine and has remained a disciplined player in the Permian, even though their West Texas acreage consistently yields a higher average of natural gas than most. But disciplined operations have yielded a quarter that far surpassed everyone else in the field, proving that they are nearly alone in raising production when many others will be out of money and cannot.

Apache (APA) is more speculative, driven mostly by the unsure opportunity given by their Alpine High acreage, where development costs are a fraction of others in the Permian. While so far results have been less than stellar and Apache remains a cash flow negative operation, their recent consolidation and concentration on prime assets should turn that around in the higher oil price environment I envision in the second half of 2017. At 52-week lows, shares remain an interesting turn-around play for higher oil prices.

While oil is about to break out of it's range, the same is not true for all the oil companies. Those that have been disciplined through the very long downturn in oil prices will be the ones that will reward investors the most as oil prices start to move higher.

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

At the time of publication, Dicker was long XEC.

At the time of publication, Action Alerts PLUS, which Jim Cramer co-manages as a charitable trust, was long XEC and APA.

TAGS: Investing | U.S. Equity | Energy | Stocks

More from Energy

Exxon Mobil Could See Its Shares Decline Even Further

Bruce Kamich
Jul 5, 2022 10:40 AM EDT

Let's check out the charts.

This Energy Play Should Turn Out A-'OKE'

Bret Jensen
Jul 3, 2022 7:30 AM EDT

Let's learn how to make an enhanced yield trade in Oneok.

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...

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

  • 12:01 PM EDT PAUL PRICE

    A Recent Director Buy in Children's Place (PLCE)

    Four of the most recent insider trades in Children...
  • 07:34 AM EDT PAUL PRICE

    A $525,000 Vote of Confidence on Macerich (MAC)

  • 09:49 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    Stop Wishing, Hoping, and Praying and Take Control...
  • 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