The increase in domestic oil & gas production over the last half dozen year has been truly astounding. Fracking and other technological advances have opened up vast new reserves throughout the country. The industry has delivered a huge increase in energy production over the last few years, despite lukewarm at best support from the current administration.
Thanks to this growing production, the United States is marching to being the leading oil & gas producer in the world by 2015. This turnaround has positive implications for our trade deficits, industry competitiveness as well as our geopolitical concerns. It is also providing a huge tailwind to energy companies that are benefitting from this new fracking technology and the corresponding steady increases in energy production.
This development is showing up consistently in earnings reports as positive surprises as well. Here are two energy plays that are riding this fracking wave to higher earnings that reported solid quarterly results this week.
Oasis Petroleum (NYSE:OAS) - I have been high on this mid-cap Bakken E&P concern for over a year and a half and have owned this shares since they were trading at $30 a share. The shares now trade north of $50 a share but the company continues to deliver impressive results.
After the bell Wednesday the company reported earnings of 80 cents a share, 5 cents above the consensus. Revenue was up 65% Y/Y to ~$305mm for the quarter which was 5% over expectations. Oasis completed 28 new wells in the quarter to bring its total to 253. Management also said it was averaging $8mm in costs per completed well, below the industry average.
The company is tracking to ~70% revenue gains this fiscal year and analysts expect more than a 40% sales increase in FY2014. The stock sports a five year projected PEG substantially below 1 (.59). This is the sixth straight quarter Oasis has beat bottom line estimates.
Earnings should double this year over FY2012 and the consensus currently is for another over 30% increase in earnings in FY2014. Given the growth in earnings & revenues, the stock is still cheap at just over 13x forward earnings, a discount to its five year average valuation (21.9).
U.S. Silica Holdings (NYSE:SLCA) - This supplier of "frack sand" has almost tripled from the $12 a share it was trading at when I first highlighted this play in June 2012. I have been in and out of the stock several times since then and have racked up some substantial profits from this unique shale play.
The company reported quarterly results this week that slightly beat on the top and bottom lines. U.S. Silica has grown revenues over 20% this fiscal year and analysts believe similar results are in store for FY2014. This is another energy concern that has a five year projected PEG of under 1 (.82).
After rising some 10% this year, earnings are projected to increase some 30% in FY2014. The stock is selling at just under 16x forward earnings but should continue to benefit from the ongoing demand trajectory for frac sand. It is one of the few players within this space which enjoys oligopoly status. I would be a buyer again on any significant dips in the market as I believe U.S. Silica is well positioned for long term growth.
Disclosure: I am long OAS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.