How Investors Can Get In On an Oil Production Resurgence

By Motley Fool Staff Markets Fool.com

Reports suggest that 2017 marks the end of the U.S. oil industry's trend of declining production. In this clip from Industry Focus: Energy, Motley Fool analysts Sean O'Reilly and Taylor Muckerman talk about a few of the best oil and gas companies for long-term investors and a long list of companies that investors will want to look into.

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A full transcript follows the video.

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This podcast was recorded on Jan. 12, 2017.

Sean O'Reilly: We've hit on two themes -- one, the U.S. production declines are over.

Taylor Muckerman: Supposedly over.

O'Reilly: Supposedly over, anecdotally, we think so. So, that obviously lends itself to increased equipment usage. So, Baker Hughes (NYSE: BHI)and Halliburton(NYSE: HAL), that's good for them. Is there any other sure bets in there in terms of assuming U.S. oil is back?

Muckerman: In terms of the big three services companies, Baker Hughes and Halliburton, Halliburton being number one, I would say, if you do see that divergence between a massive uptick in U.S. drilling spend, versus a minor 2% ex-U.S. global spend -- because Schlumberger (NYSE: SLB)gets the majority its revenues internationally, whereas Halliburton and Baker Hughes get the majority of their revenues domestically -- those would be the two I would focus on if you're looking at a services company. We mentioned the two low-cost basins in the United States, the Eagle Ford and the Permian. Just, without getting into these companies specifically, these are just the top producers in those two basins. If you look at the Permian, you're looking at Occidental Petroleum, Chevron, Apache, Exxon, and Concho Resources. If you're looking at the Eagle Ford, you're looking at EOG, which is not even close to the second place, which is so far down the list in terms of assets --

O'Reilly: EOG is the largest independent producer in the U.S.

Muckerman: Yeah. So, EOG is number one. ConocoPhillipsis two. BHP Billiton, Chesapeake, and Marathon Oil. So, you have 10 companies there you can go look at between those two basins. But then, also, we're looking at an uptick in natural gas production, because you see exports coming online in 2016 with a couple trains down in Sabine Pass for Cheniere Energy. They also have a couple more trains that should come online this year, a train being one single means of export. All these trains are similar in terms of what they export, but they bring them online individually. And then, you have Dominion(NYSE: D) focusing on its Cove Point facility in Maryland. That should come online this year as well. So, not only are we needing more natural gas domestically for energy production, but we're also now able to export it, and that's finally coming online.

O'Reilly: A lot of good leads there.

Muckerman: A lot of good leads.

O'Reilly: And, basically, the theme is, we're not endorsing any of these names, but those are the two lowest-cost areas, in terms of U.S. onshore oil production, and both of the companies that are the biggest players.

Muckerman: Correct. If you want to look at natural gas companies for the export, you have Cheniere and Dominion. Then, there's plenty of producers out there you can take a look at, Southwesternor Range Resources, both of those are pretty heavily tied to natural gas, Chesapeake as well, it has the nice assets in the Eagle Ford but then it's also heavily embedded in the Utica, which is predominantly natural gas and natural gas liquids.

O'Reilly: They're also heavily indebted on their balance sheet. (laughs)

Muckerman: (groans) Energy jokes, financial jokes!

O'Reilly: I had to, I'm sorry.

Muckerman: It's fine. You can't let them slide, they've had a rough 5-10 years. Who knows? It seems like they're getting their act together.

Sean O'Reilly has no position in any stocks mentioned. Taylor Muckerman owns shares of Halliburton. The Motley Fool owns shares of ExxonMobil and Halliburton. The Motley Fool recommends Chevron and Dominion Resources. The Motley Fool has a disclosure policy.