Buy the Next Chevron? 3 Prospects
Investors are like fisherman. We all have a story about the big one that got away.
Take a wonderful business like Chevron . A $10,000 investment in the energy giant 25 years ago would be worth $275,000 today. Not to mention that the dividend payout would've grown at an 8% annual clip over that time span.
However, we're unlikely to see that feat repeated again. That's because with a $235 billion market capitalization, Chevron is running into the law of large numbers. The company is struggling to replace reserves every year, let alone grow production at a double-digit pace.
No, the savvy investor must be on the lookout for the next Chevron: a new company with exceptional growth potential that could one day join the ranks of Big Oil. Here are three prospects that could do just that.
The only growth stock you'll ever need
Obviously, if any company will ever challenge Chevron, it will need big production growth -- and the ability to sustain this expansion for a long time to come.
Continental Resources is the definition of this with the company posting some absolutely incredible results out of the North Dakota Bakken. Last quarter, the company grew production 5% quarter over quarter and 38% year over year. And since the start of the year, Continental has increased its booked reserves by 17%.
Yet in spite of these impressive statistics, Continental's best days might still be ahead. Based on the latest figures from the United States Geological Survey, there may be an even bigger oilfield directly underneath the Bakken shale.
According to the agency's estimate, the Three Forks could contain 3.7 billion barrels of undiscovered, technically recoverable barrels of oil. That's slightly larger than the Bakken. And this new field could propel Continental's production growth for years to come.
Could this oilfield be the next Prudhoe Bay?
Pioneer Natural Resources is sitting on a massive oilfield in West Texas called the Spraberry Wolfcamp. According to the company's early estimates, this formation contains 50 billion barrels of recoverable crude oil. To put that into perspective, that's second in size only to the infamous Ghawar oilfield in Saudi Arabia.
What makes this play special is that it's thick. In reality, the Spraberry Wolfcamp is actually several oil formations piled vertically. In some places, the pay zone is 3,000 feet to 4,000 feet. That's like having 10 Bakken shales stacked on top of one another. And Pioneer is the largest leaseholder in the area with more than 900,000 gross acres.
Pioneer is a solid operator too. The company has a great set of assets in fast-growing Texas oilfields like the Eagle Ford and the Barnett shale, which generate plenty of cash flow. Assuming oil prices stay above $80 per barrel, Pioneer should be able to fund its drilling program without any equity issues.
Here is the fastest-growing company in the oil business
What makes EOG Resources so special? The company is sitting on a triple play of great American shale assets including the North Dakota Bakken, the South Texas Eagle Ford, and the West Texas Wolfcamp. This trinity has propelled EOG's production growth at a 38% annual clip over the past seven years.
What separates EOG from rival oil producers is its execution. While other operators are struggling to obtain pipeline capacity, EOG was one of the first to exploit crude by rail. This has allowed the company to bypass the transit problems plaguing the rest of the industry and secure the highest possible price for its crude.
EOG is also finding ways to save money. In the past year, the company's average well completion costs in the Eagle Ford have fallen 17% to $5.8 million per well.When you multiply that figure across the 460 net wells the company plans to drill next year, you get $460 million in annual cost savings. That's a substantial figure.
Foolish bottom line
Could these companies join the ranks of Big Oil in the near future? All three have the growth profile to pull it off. They're definitely companies to keep on your watchlist.
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The article Buy the Next Chevron? 3 Prospects originally appeared on Fool.com.Robert Baillieul has no position in any stocks mentioned. The Motley Fool recommends Chevron. The Motley Fool owns shares of EOG Resources. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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