Investors Question Oil Output in Permian Basin, America’s Fastest-Growing Field

10 Aug 2017   Shale Oil

Investors helped turn West Texas’ Permian Basin into America’s fastest-growing oil field, but their confidence is cracking over whether drillers can keep production rising.  Questions mounted last week after Pioneer Natural Resources Co. PXD 1.60% reported that its Permian wells are producing more gas and natural gas liquids such as propane than expected. That worried investors, who care a lot more about oil.  Shares of Pioneer and other Permian producers tumbled as a result. Pioneer ended the week down 16%, while Parsley Energy Inc. PE -0.78% and Concho Resources Inc.CXO 0.76% both declined more than 9% over that stretch  The main issue for Wall Street is whether the Permian, where nearly half the rigs drilling for oil in the U.S. are located, will continue apace or will fall short of the expectations of investors, who in recent years crowded into companies drilling there.  “The Permian is going to have some growing pains,” Scott Hanold, an analyst at RBC Capital Markets, said this week.

The concerns aren’t universal, and some say they are overblown. “I don’t think anything has changed in the Permian. It’s the lowest cost, best basin to be in, with the best rock,” said Bill Costello, portfolio manager at investment firm Westwood Holdings Group. “If people are going to give me the opportunity to buy more, I’m going to buy more all day long.”  Some Permian stocks have partly recovered since last week’s plunge. Cimarex Energy Co.was the S&P 500’s biggest gainer Wednesday, rising about 7.5% after it reported more oil production than expected.  But the selloff, and analyst notes that followed, reveal that some investors are questioning whether they were overly confident in the resilience of the Permian, and perhaps overpaid for it.

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