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Dan Dicker

Dan Dicker

Dan Dicker is a 25 year veteran of the New York Mercantile Exchange where he traded crude oil, natural gas, unleaded gasoline and heating oil…

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How To Play The OPEC Production Cut

We’ve been trying to leverage what we’re convinced will be a substantial OPEC accord on Wednesday, November 30th, and spent the last several columns outlining why we’ll see at least a six-month agreement to knock more than a million barrels a day of OPEC production off the market.

Now comes the time to find some stocks to play for the next week and going into the rest of the year. Here, I’ve tried to point people towards some of the Permian shale players, who are already the hottest of the oil companies: Cimarex Energy (XEC), Concho Resources (CXO) and Pioneer Natural Resources (PXD), to name three of the hottest.

But it is true that many of these have become almost TOO well regarded, leaving some others in the oil space as perhaps more interesting mid-term plays for the coming meeting and beyond. Let me suggest two names to you: Oasis petroleum (OAS), a leveraged Bakken oil company, and Noble Energy (NBL), an underestimated player who will benefit from their assets in the Niobrara shale.

These two names couldn’t be less like one another, but together they make a nice pair of oil companies. Let’s start with Oasis, the one that I had once included on my ‘walking dead’ list of oil companies, convinced that they’d be unlikely to make it out of the crude bust cycle without a restructuring.

Well, the bust cycle is hardly over, and I’m not yet entirely convinced that Oasis will make it. But I am becoming more convinced that they will – they were one of several over-leveraged shale players to concentrate on increasing efficiencies and centering on prime acreage throughout 2016, while also successfully completing a refinancing secondary on October 18th for a cash infusion of over half a billion dollars. This cash has easily covered their debt flow problems for now, while also helping to finance their acquisition of the bankrupted SM energy Bakken acreage. Have a look at this daily chart:

(Click to enlarge)

Are they completely in the clear? Hardly. But their stock does show how much more confidence they’re getting from the markets in their survival, and if crude does continue to rally towards $60, as I think it will, they are still very cheap and will continue to trade well. A worthy speculative play going into Wednesday.

Now, on to Noble. One shale play that’s been mostly ignored has been the DJ basin and Niobrara. But as all focus has moved to the Permian as Bakken and Eagle Ford growth has stalled, the continued progress in the DJ Basin has gotten almost completely overlooked. It is here that Noble Energy has its strongest shale position, with four times the acreage of their holdings in Texas and twice the daily production. Much of the focus for Noble’s share price has centered around their partnership in the Israeli offshore Leviathan play – but as that opportunity has stabilized, the time has come to refocus on their onshore shale – have a peek at this weekly chart:

(Click to enlarge)

That focus on Mideast offshore gas, among other distractions, has caused Noble shares to trade flatly throughout 2016, which smells to me like a breakout pattern. I think this OPEC meeting could be the impetus to finally ignite shares higher. Noble strikes me as one of the few large cap U.S. independents that has yet to benefit from the expectation of higher oil prices. A good match for Oasis.

Together, these two would make a fine start to a mid-term oil portfolio going into the OPEC meetings on Wednesday, particularly if you’re betting on a substantial production cut agreement.

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