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Alex Kimani

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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3 Shale Stocks Bucking A Worrying Trend

  • Despite high prices, the shale industry is struggling with high costs, labor shortages, and a lack of prime drilling locations.
  • While larger frackers have been forced to hold production levels more or less steady as they returned cash to shareholders, some smaller companies are boosting production.
  • Smaller companies are capitalizing on the highest oil prices in seven years to boost production levels and increase profits.

Back in February, the Wall Street Journal released an alarming report that revealed how the U.S. shale revolution could be on its last legs. The breakneck 30% annual output growth by the Shale Patch before the pandemic was such a torrid clip that it could only last for years before producers ran out of prime drilling locations. 

Now, the oil price rebound is in full swing, but shale producers have still chosen to hold back on increasing production, despite the highest oil prices in years and requests from the White House to drill more. Many now prefer to return excess cash to shareholders in dividends and buybacks. 

Meanwhile, equipment and labor shortages, as well as cost inflation, are making it difficult for Big Oil to exceed production targets this year.

Indeed, limited inventory levels suggest that the era in which U.S. shale companies could quickly flood the world with oil is a thing of the past, and that market power is steadily shifting back to other producers, mainly overseas. 

For investors looking for shale opportunities, however, there are still some good openings.  

Whereas many large frackers are holding production levels steady, another WSJ report says that smaller and more nimble producers are leading output gains as they look to capitalize on the highest oil prices in seven years.

U.S. shale production is estimated to have increased by more than 100,000 bpd in March to 8.7 million bpd, with smaller producers leading the charge. Shale drilling represents about 60% to 70% of U.S. oil production.

Here are 3 shale companies that are set to grow their output and, hopefully, boost shareholder returns.

#1. Continental Resources

      Market Cap: $19.8B

      YTD Returns: 25.4%

Oklahoma City-based Continental Resources, Inc. (NYSE:CLR) explores for, develops, produces, and manages crude oil, natural gas, and related products primarily in the north, south, and east regions of the United States. The company sells its crude oil and natural gas production to energy marketing companies, crude oil refining companies, and natural gas gathering and processing companies. 

As of December 31, 2021, its proved reserves were 1,645 million barrels of crude oil equivalent (MMBoe) with proved developed reserves of 908 MMBoe. 

A few days ago, Continental Resources announced that it would look to take advantage of higher crude oil prices and raised guidance for full-year oil production target to 200K-210K bbl/day from 195K-205K previously, with a year-end exit rate of 220K-230K bbl/day, which includes last month's Powder River acquisition.

Continental also edged its natural gas output forecast higher to 1.1B-1.2B cf/day from 1.04B-1.14B cf/day. Continental's planned increases follow big jumps in Q1 production, with oil output jumping 28% Y/Y to 194.8M bbl/day from 151.9M a year ago, and natural gas gaining 7.5% to 1.07B cf/day from 936.5M a year ago.

Meanwhile, the company also raised capex spending guidance for 2022 to $2.6B-$2.7B from $2.3B in 2021 and projected return on capital employed to 31% in the current year.

#2. EQT Corp.

      Market Cap: $15.0B

      YTD Returns: 81.4%

EQT Corporation (NYSE:EQT) operates as a natural gas production company in the United States. The company produces natural gas, natural gas liquids (NGLs), including ethane, propane, isobutane, butane, and natural gasoline.  Related: The Global Energy Shortage Could Be A Boon For Tidal Power

As of December 31, 2021, EQT had 25.0 trillion cubic feet of proved natural gas, NGLs, and crude oil reserves across approximately 2.0 million gross acres, including 1.7 million gross acres in the Marcellus play. 

Last month, EQT Corp. unveiled a plan centered on producing more liquified natural gas by dramatically increasing natural gas drilling in Appalachia and around the country's shale basins, as well as pipeline and export terminal capacity, which it said would not only boost United States energy security but also help break the global reliance on coal and on countries like Russia and Iran.

#3. Matador Resources

      Market Cap: $6.0B

      YTD Returns: 29.5%

Matador Resources Company (NYSE:MTDR) is an independent energy company based in Dallas, Texas, that engages in the exploration, development, production, and acquisition of oil and natural gas resources in the United States. It operates through two segments, Exploration and Production; and Midstream. 

The company primarily holds interests in the Wolfcamp and Bone Spring plays in the Delaware Basin in Southeast New Mexico and West Texas. It also operates the Eagle Ford shale play in South Texas; and the Haynesville shale and Cotton Valley plays in Northwest Louisiana. 

As of December 31, 2021, its estimated total proved oil and natural gas reserves were 323.4 million barrels of oil equivalent, including 181.3 million stock tank barrels of oil and 852.5 billion cubic feet of natural gas. The company was formerly known as Matador Holdco, Inc. and changed its name to Matador Resources Company in August 2011. 

Matador has announced that it expects "significant increases" to oil and natural gas production, which will rise to 107,000 barrels a day in the second quarter, up 14% from the previous three months. Matador also expects its capital spending to jump 31% to $675 million this year, in part due to service cost inflation and new well drilling.

By Alex Kimani for Oilprice.com

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Leave a comment
  • joseph yechout on May 02 2022 said:
    This administration has throttled our energy production and are denying exploration on Gov. owned lands of which there are millions of acres. Closed down the Keystone pipeline, drilling in the ANWR lands. and much more. All for the green new Deal which is nothing more than
    destroying our country with high energy costs. Inflation only caused by the plandemic?
    Not quite. Recall oil/gas prices when trump was in the driver's seat?
    Open borders? Destructive actions by this bunch again.

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