Why Bill Barrett Corporation's Stock Is Soaring Today

By Markets Fool.com

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What: Shares of Bill Barrett (NYSE: BBG) spiked on Monday and were up 10% at 2:45 p.m. EDT.

So what: Fueling today's surge was Bill Barrett's decision to restart its drilling operations in the DJ Basin. Thanks to a combination of cost reductions and higher oil and gas prices, Bill Barrett believes that it can now earn a competitive return on wells drilled in the region at current prices. Because of that, it plans to drill 12 wells in the area by the end of the year. However, those wells won't start producing until early next year.

The company expects to fund this development by spending at the high end of its 2016 capex budget range of $75 million to $100 million. That said, it still projects to be cash flow positive this year even after spending at the upper end of its capex range, which allows it to preserve its liquidity position while building momentum for 2017.

Bill Barrett joins a growing list of producers that are making investment decisions geared toward 2017. Leading North American driller Devon Energy (NYSE: DVN), for example, recently added $200 million to its capex budget to accelerate drilling in its Delaware Basin and STACK plays. That said, the incremental capital won't deliver any additional production for Devon Energy until 2017 because of the time it takes to drill and complete wells. While those wells can earn solid returns at current prices, Devon's hope is that these wells will come on line into an improving oil price environment.

Now what: Bill Barrett's decision to restart its DJ Basin drilling program shows the progress it made in reducing costs because those wells are now economical to drill at current prices. Furthermore, it positions the company to capture the upside of what will hopefully be a much stronger oil market in 2017 when these wells come on line.

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Matt DiLallo has no position in any stocks mentioned. The Motley Fool owns shares of Devon Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.