A little over a year ago, the Saudi’s had just declared diplomatic oil policy war on the Russians, who declared it right back, seemingly threatening to divide the new OPEC+ model and ruin what had been the savior for the oil market back in 2016.
With the growth of US and Russian production, OPEC lost control in 2014-15. Then, in early 2016, Russia (and a few other small producers) joined the cartel on a coalition basis, bringing enough production back into the umbrella to control prices again.
One thing is set in stone: OPEC+ came together to support oil prices against US production growth. However, over the past several years, US production growth has started to dwindle, and some might argue now that those most interested in higher oil prices suddenly have unchallenged control at a time when investments in new oil production have gone off a cliff.
You can thank the early days of the pandemic for sealing the fate on that last point.
The result: we are now facing the growing prospects of a boom higher in global oil prices due to insufficient production capacity growth and insufficient redeployment of developed resources through activation of existing wells and rigs. And there’s no regulatory obstacle to major national producers erring on the side of safety and letting oil prices establish a foothold well above current levels.
Saudi Arabia has 298 billion barrels in reserves. They also have to deal with the ever-present prospect of a sovereign debt crisis given the lack of diversification away from the oil market in the Saudi economy and the massive debt held by EU banks. The difference between stable oil at $60/bbl and stable oil at $90/bbl is $8.94 trillion to the Saudi’s.
Banks conduct “redetermination” twice each year to revalue collateral for raw goods debt. Oil producers borrow on terms defined by that process. An extra roughly $9 trillion in collateral value for a country that was only one year ago fighting back rumors of a run on the sovereign bank is a big motivation. That suggests major jumps in production from OPEC+ will be slow in coming over the next year.
The big question for energy traders is this: What happens when the masks come off and everyone decides to drive across the country or fly to distant vacation spots at the same time as we reach herd immunity through widespread vaccinations?
It’s going to be a massive draw on existing oil and gas production capacity.
This whole story paints a powerful picture for the rebirth of small oil and natural gas producers that fall outside of the OPEC+ umbrella, particularly in the US.
Both the price of oil and the spillover demand for new supplies act as a special bull catalyst for companies like Range Resources Corp. (NYSE:RRC), Matador Resources Co (NYSE:MTDR), Viking Energy Group Inc (OTCMKTS:VKIN), and Diamondback Energy Inc (NASDAQ:FANG).
Range Resources Corp. (NYSE:RRC) trumpets itself as a leading U.S. independent natural gas and NGL producer with operations focused on stacked-pay projects in the Appalachian Basin.
The Company is headquartered in Fort Worth, Texas.
Range Resources Corp. (NYSE:RRC) most recently announced its first quarter 2021 financial results, including realizations before index hedges of $3.20 per mcfe, or approximately $0.51 above NYMEX natural gas, pre-hedge NGL realization of $26.35 per barrel, highest since late 2018, and NGL differential of $1.52 per barrel above Mont Belvieu, best in Company history.
Commenting on the quarter, Jeff Ventura, the Company’s CEO said, “Range continues to make progress on key near-term objectives: improving margins with a focus on cost structure, generating free cash flow, enhancing liquidity, and operating safely while maintaining peer-leading capital efficiency. There were sizable improvements in pricing quarter-over-quarter leading to Range’s $193 million in cash flow from operations before changes in working capital. The corresponding capital spending of $105 million generated solid free cash flow for the quarter.
The context for this announcement is a bit of a bid, with shares acting well over the past five days, up about 11% in that timeframe.
Range Resources Corp. (NYSE:RRC) pulled in sales of $513.4M in its last reported quarterly financials, representing top line growth of -12.6%. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($458K against $706.8M, respectively).
Matador Resources Co (NYSE:MTDR) is an independent energy company engaged in the exploration, development, production and acquisition of oil and natural gas resources in the United States, with an emphasis on oil and natural gas shale and other unconventional plays.
Its current operations are focused primarily on the oil and liquids-rich portion of the Wolfcamp and Bone Spring plays in the Delaware Basin in Southeast New Mexico and West Texas. Matador also operates in the Eagle Ford shale play in South Texas and the Haynesville shale and Cotton Valley plays in Northwest Louisiana.
Matador Resources Co (NYSE:MTDR) has discussed its plan to increase oil production in 2021 to generate additional cashflow. The company projects this year’s total oil production in the range of 17.2 to 17.8 million barrel, suggesting a 10% year-over-year improvement.
In addition, the company’s focus on capital efficiency should help the bottom line. This year, MTDR projects drilling and completion costs for operated horizontal wells turned to sales to plunge roughly 14% year over year. It is also looking to initiate dividend payments this year, which will help to drive investor interest in a virtuous circle in a rising oil price context.
And the stock has been acting well over recent days, up something like 9% in that time.
Matador Resources Co (NYSE:MTDR) generated sales of $257.6M, according to information released in the company’s most recent quarterly financial report. That adds up to a sequential quarter-over-quarter growth rate of 16.1% on the top line. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($91.4M against $290.9M, respectively).
Viking Energy Group Inc (OTCMKTS:VKIN) bills itself as an independent exploration and production company focused on acquiring, enhancing and developing oil and natural gas properties in the Gulf Coast and Mid-Continent regions.
The company has assets in Texas, Louisiana, Mississippi, and Kansas. It is also currently the majority-owned subsidiary of Camber Energy Inc (NYSEAMERICAN:CEI), and a merger agreement is in the works that could increase the value of both companies through geographic and operational synergies. The Definitive Agreement has already been signed for the full merger (pending vote and regulatory “ok”) and contemplates a simple one-to-one share exchange, which now appears advantageous to CEI shareholders.
Viking Energy Group Inc (OTCMKTS:VKIN) most recently announced performance metrics, which continued to show tremendous promise. According to its filing, Viking recorded new top marks in topline performance, posting 2020 revenues above $40 million, which is up over 400% from 2018.
James Doris, President and Chief Executive Officer of both Camber and Viking, commented, “We are pleased with Viking’s results given the challenges faced in 2020. In many respects the year was about survival for E&P companies given the unprecedented price environment and market conditions, and not only did we endure thanks to the commitment and perseverance of our entire team we also managed to improve in key areas, including increasing overall revenues and reducing debt at the Viking level. We remain focused on executing on our strategy and forging a path toward profitability.”
Over the past month, shares of the stock have been pulling back into key support, which could offer oil investors an interesting opportunity.
Viking Energy Group Inc (OTCMKTS:VKIN) managed to rope in revenues totaling $8.8M in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 16.9%, as compared to year-ago data in comparable terms, paired with cash levels approaching $8M in the coffers.
Diamondback Energy Inc (NASDAQ:FANG) has been one of the best performing names in the energy space over the past 10 months, ripping over 250% since November.
The company frames itself as Diamondback is an independent oil and natural gas company headquartered in Midland, Texas focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves primarily in the Permian Basin in West Texas.
Diamondback Energy Inc (NASDAQ:FANG) recently provided an operational update for the first quarter of 2021 and announced revised full year 2021 guidance, including estimates of Q1 2021 average production of 184.2 MBO/d (307.4 MBOE/d), Q1 2021 average unhedged realized prices of $56.94 per barrel of oil, $22.94 per barrel of natural gas liquids and $3.05 per Mcf of natural gas, resulting in a total equivalent price of $42.36 per BOE, and Q1 2021 average hedged realized prices of $46.81 per barrel of oil, $22.76 per barrel of natural gas liquids and $2.64 per Mcf of natural gas, resulting in a total equivalent price of $35.75 per BOE. Diamondback realized total hedging losses of $102 million in the first quarter, including $80 million of realized gains from the early termination of interest rate swaps.
“Diamondback executed well in the first quarter 2021 and quickly overcame the adversity presented by Winter Storm Uri in February. We closed our two previously announced Guidon and QEP acquisitions in the quarter, and subsequently executed a successful tender offer and refinancing of QEP’s senior notes. This refinancing adds $40 million of annual interest cost savings to the $60 – $80 million of previously announced annual cost synergies expected to be extracted from the QEP transaction,” stated Travis Stice, Chief Executive Officer of Diamondback.
The context for this announcement is a bit of a bid, with shares acting well over the past five days, up about 7% in that timeframe.
Diamondback Energy Inc (NASDAQ:FANG) managed to rope in revenues totaling $769M in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of -30.3%, as compared to year-ago data in comparable terms. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($108M against $1.2B, respectively).
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