• 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

Permian Rush in Texas Is Giving Boost to Oklahoma Producers

Transportation bottlenecks in booming Texas shale fields are making other locations more profitable.
By ELIECER PALACIOS
Sep 10, 2018 | 03:33 PM EDT
Stocks quotes in this article: EOG, AMR, CRZO, XLE

Oil and gas producers are moving beyond the Permian Basin in West Texas as crude oil prices rise and the commodity glut in the Permian Basin continues to mount. We favor diversified shale players who are also active in Oklahoma, particularly those operating in the SCOOP and STACK oil plays, such as EOG Resources (EOG) and Alta Mesa Resources (AMR) , which have direct access to pipeline capacity and enjoy international market pricing.

For reference, the STACK play is a geographic area located in the Anadarko Basin area of Oklahoma, which it stands for Sooner Trend Anadarko, Canadian and Kingfisher, which in turns means that the geological formation is located in the Anadarko basin, mainly located across the Canadian and Kingfisher counties in Oklahoma. The SCOOP play stands for South Central Oklahoma Oil Province, which is a play also located in the Anadarko Basin.

While the Permian Basin in Texas and New Mexico has experienced explosive growth and it remains the fastest-growing shale basin, congested pipelines and shortages of labor, such as trucking, are hurting profits, making other fields like the SCOOP//STAK attractive alternatives. Pipeline construction in the Permian has not kept pace with production, leading to bottlenecks that are now making it difficult for some producers there to move their oil to market. 

Crude oil for delivery to Midland, Texas, where the local price of crude is set, has recently sold for $12 to $15 below the price of crude for delivery in Cushing, Oklahoma, they pricing point for West Texas Intermediate (WTI). This discount reflects the added cost some face getting oil to refineries and export facilities out of the region using trucks and trains. This is not a problem in Oklahoma as investment in infrastructure has been made over the years.

In contrast, some of the oil fields that are growing, notably the Eagle Ford, where Carrizo Oil & Gas (CRZO) holds significant acreage, had experienced their own bottleneck problems before prices started dropping in 2014.

Thus, the question for many producers has shifted from how much capital they should allocate into the Permian Basin, to where else can capital be put to work.

EOG Resources, one of the leading large cap shale producers, is not only active in the Permian, which accounted for 39% of its existing production of 5.4 million barrels a day, but also in Colorado, North Dakota and Oklahoma. In Wyoming, EOG has built up large lease holdings and expanded production over the past two years. EOG is up 11% for the year, substantially outperforming the SPDR Energy Sector ETF (XLE) .

While top-tier acreage in the Delaware Basin, the west-most part of the Permian Basin, has sold for over $33,000 an acre over the last year, acreage in the SCOOP and STACK go for half of that, giving investors an opportunity for attractive returns.

As for Alta Mesa, the company is a leading developer of the STACK oil window, with over 130,000 net acres, 25,600 barrels a day of production, with wells delivering over 77% of internal rates of return (IRR). The company has reliable access to midstream infrastructure, particularly due to their co-investment in the Cimarron Express pipeline, which will have an initial capacity of 90,000 barrels per day, and is expandable to over 175,000 barrels per day. The new pipeline is expected to be completed in mid-2019.

Alta Mesa is down over 50% for the year on the back of analyst downgrades due to unmet production targets, we think the stock has been sold off enough that there is only upside from here as management executes is growth strategy, particularly the development of its midstream operations. On top of that, it is very difficult to short a stock below $5 for liquidity reasons, thus is safe to say that large short sellers are probably out of the name, and on to the next one.

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, Palacios did not have any holdings in the stocks mentioned.

TAGS: Commodities | Markets | Energy | Investing | Stocks

More from Energy

Can Generac Generate Enough Technical Power to Rally?

Bruce Kamich
Jun 29, 2022 11:55 AM EDT

Sometimes the fundamentals and technical indicators are on the same page and sometimes they are not.

Let's Look Under the 'Shell' of This ESG-Style Fund

Mark Abssy
Jun 28, 2022 2:00 PM EDT

One of the Nuveen Global Net-Zero Transition exchange-traded fund's largest holdings is Shell, so let's drill down on this supposedly environmentally friendly ETF.

The Fed Blinked and So Did We

Peter Tchir
Jun 27, 2022 9:30 AM EDT

Here's what we need to get a bigger rally.

See That Down the Road? It's the Big 'Green' Bubble, Ready to Pop

Jim Collins
Jun 24, 2022 1:30 PM EDT

Environmental, social, and corporate governance has created a monster and gullible investors should hit the brakes on their EVs and run from the Washington technocrats while they have the chance.

Weber's Rally Was Cooked Up By the Shorts and Something I Experienced First Hand

Jonathan Heller
Jun 24, 2022 10:00 AM EDT

It should be an interesting ride from here.

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

  • 04:51 PM EDT PAUL PRICE

    We should be in for better starting soon.

    Window dressing tomorrow, the last day of ...
  • 11:56 AM EDT STEPHEN GUILFOYLE

    Stocks Under $10

    Check out what's going on in the Stocks Under $10 ...
  • 12:04 AM EDT PAUL PRICE

    Two Good Signs -- Especially for Small-Cap Investors

  • 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