Why the Permian Basin Will Produce Years of Profits for These 3 Energy Giants
Major oil and gas companies in the United States are increasingly relying on domestic production to fuel growth. This is due to a variety of factors, including substantial new onshore discoveries, and the ever-present geopolitical risk presented by civil unrest in unstable geographies. This has caused U.S. energy giants to seriously rethink their global positioning, and many are now returning to the comfort of home, and are focusing on resource-rich plays in the United States.
One particular play that shows substantial promise is the Permian Basin, located in West Texas and eastern New Mexico. Several energy firms, including Occidental Petroleum , Apache Corp. , and Devon Energy , have ratcheted up their operations in the Permian Basin. Here's why their efforts are likely to pay off.
The Permian play will pump out years of profits
U.S. energy production is on the rise, thanks in large part to the Permian Basin. The U.S. Energy Information Administration expects U.S. crude oil production to rise from an average of 6.5 million barrels per day last year, to 7.5 million barrels per day this year, and 8.5 million barrels per day in 2014. This is due to several huge finds in the United States, including the Permian Basin. Earlier this year, energy consultancy Bentek speculated that crude oil production in the Permian Basin would rise by 60% to reach approximately 1.82 million barrels per day all by itself.
This has simply been a boon for oil and gas producers. Occidental is the number one oil producer in Texas and by itself accounts for approximately 16% of all oil produced there. In all, Occidental holds 2.5 million net acres in the Permian region, which contributed heavily to Occidental growing domestic production by 7,000 barrels of oil equivalent per day in the third quarter.
In fact, Occidental has been so successful with domestic energy projects that it's largely abandoning higher-risk international plays to focus its operations here at home. Occidental Petroleum recently announced it would sell its interests in the Middle East and North Africa, where the company's assets contain 929 million barrels of oil equivalents in proved reserves. President and CEO Stephen Chazen stated his intention for Occidental to become a smaller company with more manageable exposure to political risk, and you can bet he's now focusing intently on domestic plays like the Permian Basin.
For its part, Apache controls more than 3.5 million gross acres in the Permian Basin. Apache operates more than 12,000 wells in 152 fields there. Apache's year-end estimated proved reserves were 800 million barrels of oil equivalents, which represented 28% of Apache's total proved reserves. Last year, Apache's liquids production in the region rose 25%. This year, Apache's achievements in the Permian Basin speak for themselves. Third-quarter production in the region rose 18% year over year to reach a record 131,665 barrels of oil equivalent per day.
Meanwhile, the Permian Basin is a big reason why Devon Energy has engineered a significant turnaround this year. Devon delivered a $151 million profit over the first three quarters of the year, reversing the $227 million loss from the same period last year. Devon saw 38% production growth in its U.S. oil operations, with major contributions coming from the hugely successful Permian Basin. In all, total production of oil, natural gas, and natural gas liquids averaged 691,000 barrels of oil equivalent per day in the third quarter. This figure handily exceeded the midpoint of the company's previously issued production guidance.
U.S. energy production is on the rise, and the Permian Basin proves it
Due to civil unrest and supply disruptions in the Middle East and Africa, major oil and gas producers are coming back to the United States. Domestic energy production proceeds full steam ahead, thanks largely to the massive amounts of oil and gas concentrated in the Permian Basin in West Texas and eastern New Mexico.
Occidental Petroleum, Apache Corp. and Devon Energy are ratcheting up production in the Permian Basin region, and their production levels are already seeing the benefits. The Permian Basin represents a golden opportunity, which is why these companies should keep pumping out profits for years to come.
The boom isn't over
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a comprehensive look at three energy companies set to soar during this transformation in the energy industry. To find out which three companies are spreading their wings, check out the special free report, "3 Stocks for the American Energy Bonanza." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free.
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