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Global Unrest May Have US Shale Oil Stocks Sitting Pretty

7 March 2014 in Trading Ideas

The recent rise in crude oil prices amid tensions in several countries where oil plays a major role in the world’s export market – Ukraine and Venezuela, for example – has also seemed to re-focus investors’ attention on companies with a hand in the relatively stable US shale oil sector.

The Shale Oil motif has gained 9.5% in the past month; the S&P 500 is up 5.9% in that same time period. In the past 12 months, the motif has gained 32.8%; the S&P 500 has increased 24.1%.

Crude oil prices hit their highest levels of 2014 earlier this week as rising tensions about possible supply disruptions from Ukraine kept investors jittery.1

However, independent of geopolitics, several recent developments suggest health in the US shale oil sector.

Late last month, Occidental Petroleum , whose stock has a 23.9% weighting in the Shale Oil motif, said it would spin off its California operations into a separately traded company. While the move gives the company the chance to ramp up a stock repurchase program and boost its dividend, it also allows the company to focus more of its attention on its prime profit-generating shale property in Texas’ Permian Basin.2

The company plans to spend about $450 million more in the Basin that it did last year, drilling 345 wells. Oxy projects that basinwide oil production will grow by more than 6% this year, in hopes of generating $1.8 billion of cash flow after capital.

This week also saw an announcement by oil major BP that it would create a new business to manage its US onshore oil and gas assets.


A bitter reality for the world’s big oil companies is that the US shale boom has largely been driven by smaller independent exploration companies that more quickly developed techniques for hydraulic fracturing and horizontal drilling.

BP’s move is seen as an attempt to more effectively compete with these smaller companies, and analysts believe the company would consider selling the new division if its performance doesn’t improve.3

However, investors have recently seen the arrival of a handful of other companies that were among the first IPOs of 2014 – Cypress Energy Partners, EP Energy, RSP Permian, and Rice Energy all went public in the year’s first month.

With growing national oil and natural gas production throughout the US, some of the nation’s largest IPOs in recent years have come at the hands of drillers and service providers seeking capital to build out operations.4

And unlike production elsewhere in the world, possible supply disruptions have not been as concerning for investors.

1Gary Strauss, “Crisis in Ukraine sends oil to 2014 highs,” usatoday.com, March 3, 2014, http://www.usatoday.com/story/money/markets/2014/03/03/crude-oil-spurts-higher-on-escalating-tensions-in-ukraine/5973181/.

2Arjun Sreekumar, “Occidental Petroleum Corporation’s Huge Opportunity in the Permian Basin,” fool.com, Feb. 27, 2014, http://www.fool.com/investing/general/2014/02/27/occidental-petroleum-corporations-huge-opportunity.aspx, (accessed March 5, 2014).

3Guy Chazan and Ed Crooks, “BP creates new US onshore oil and gas business,” FT.com, March 4, 2014.

4Matt Jarzemsky, “Shale Drilling Industry Leads First Round of US IPOs,” WSJ.com, Jan. 14, 2014.

Tags: shale oil