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Permian Stocks Falling Out of Favor

Friday June 8, 2018

In the latest edition of the Numbers Report, we’ll take a look at some of the most interesting figures put out this week in the energy sector. Each week we’ll dig into some data and provide a bit of explanation on what drives the numbers.

Let’s take a look.

Key Takeaways

- U.S. oil production rose to another record at 10.8 million barrels per day. Reported bottlenecks are still not showing up in the production data, but sharp price discounts suggest the region is suffering. The production data may only reflect these problems later on.
- A sizable increase in imports led to an increase in crude inventories.
- The big surprise this week was the enormous increase in gasoline inventories, a bearish sign.

1. Permian stocks falling out of favor



• Over the last few years, shale E&Ps fell over themselves to acquire as much Permian exposure as they possibly could, and the “pure play” Permian stocks were the darlings of Wall Street.
• That is changing. A Bloomberg analysis of 13 Permian-focused shale stocks found that their average price-to-earnings ratio (P/E) declined from 19 times to just 15.6 times over the past month.
• Permian drillers are actually now much less attractive than shale firms with exposure elsewhere.
• For instance, Parsley Energy (NYSE: PE) has seen its share price fall about 15 percent in the past month.

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