3 Ways To Play The Shale Oil Boom

Includes: APA, APC, CHK, PTEN, PXD
by: Dave Dierking

Whether or not you believe that fracking for oil is a long-term solution that's here to stay there's no doubt that it's yielding results right now. The United States is inching ever closer to establishing itself as an energy independent nation thanks to big oil finds in the Permian basin, the Eagle Ford basin, and the Bakken Shale Oil field.

For those looking to try to profit from the boom in fracking and domestic oil production there are a few different ways to approach it. Not only do you want to look at companies that own large acreage or a large number of drilling locations in any of these areas you can also look at companies that provide infrastructure or more of a global presence to help diversify risk. All three could be positioned to benefit but in different ways.

Here are three ideas to consider if you're looking to profit from the current shale oil boom.

Pioneer Natural Resources (PXD)

When it was announced earlier this year that the Spraberry/Wolfcamp play in the Permian basin held as much as 50 billion barrels of recoverable oil, investors and analysts alike took notice of which companies stood to benefit the most from this discovery. The company with the greatest exposure and acreage in the Permian? Pioneer.

Pioneer has already ramped up its production to around 180,000 barrels a day and is planning on pulling up more oil in 2014 thanks to additional drilling locations and strategic partnerships. The stock is currently around $175 per share - a pullback from its high of $225. Its forward P/E of 33 and P/S of 8 are higher than competitors like Apache (APA) and Chesapeake Energy (CHK) (who also have significant positions in the Permian and also plan on increasing production) but Pioneer in its current position is a pure growth play. If the amount of oil estimated in Permian is real and Pioneer begins ramping up its production this is a stock that could be off and running in 2014.

Anadarko Petroleum (APC)

A company like Pioneer may be a more pure play on areas like the Permian basin and the Eagle Ford shale but if you want an energy company that's a little more broadly diversified you'll want to look at a name like Anadarko.

Anadarko has positions in not just the Eagle Ford and Permian regions but significant assets globally as well. The company is expecting roughly 10% revenue growth and 22% earnings growth in 2014. With the forward P/E ratio sitting at 15 and the P/B ratio below 2, the company has a solid value profile for a global energy player but it's not without its risks.

A judge recently issued a multi-billion dollar judgment against the company related to its past purchase of Kerr-McGee. As a result the stock currently sits about 20% below its 52 week high and could hold more downside depending on what the final judgment value comes in at. Even at these levels, Anadarko still represents a worthy investment value considering its growth forecast and opportunity in the Permian. Plus, Bloomberg recently noted that the company also represents a potential buyout candidate thanks to its depressed stock price.

Patterson-UTI Energy (PTEN)

Patterson-UTI recently earned a mention in Money Magazine as one of its featured stock picks for 2014 and it's easy to see why. If you don't want to invest in one of the oil and gas companies themselves why not invest in one of the companies that build the drilling rigs that pull the oil out of the ground?

The play here is pretty straightforward. As companies want to increase the number of barrels of oil they want to extract the demand for drilling rigs and equipment should also increase. 2014 will likely be a battle between the company's revenue growth and the costs incurred from its fleet rigs. Patterson announced that it's going to incur a $38 million charge due to the retirement and under-utilization of several of its rigs. The result is that while revenues should grow due to increased demand earnings should be limited as revenue growth gets offset by increased costs.

Lower earnings expectations leave the forward P/E ratio at an inflated 21. But cash flows remain positive, revenue growth potential should be high and a recent $150 million stock buyback suggest that the company is in a strong position and investors could be rewarded as long as oil and natural gas prices don't drop.


The potential for companies that derive revenue related to the fracking boom stand to significantly benefit as oil production and exploration expands. With the proven reserves that exist in the United States' shale plays, there should be many winners in the space and that will benefit investors that choose companies that have direct exposure to areas like the Permian basin or those that provide equipment to drillers in the area.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in PXD, over the next 72 hours. 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.