Dahlman Rose Out With An Update On Oil & Gas (CXO, DNR, XEC)

Dahlman Rose & Co. is out with an industry report on the North American oil & gas sector. In the research report, Dahlman Rose covers Concho Resources Inc. (NYSE: CXO), Denbury Resources Inc. (NYSE: DNR), Energy XXI Ltd (NASDAQ: EXXI), Petrohawk Energy Corporation (NYSE: HK), Mariner Energy, Inc. (NYSE: ME), McMoRan Exploration Co. (NYSE: MMR), Plains Exploration & Production Company (NYSE: PXP), Range Resources Corp. (NYSE: RRC), Southwestern Energy Company (NYSE: SWN), Ultra Petroleum Corp. (NYSE: UPL), EXCO Resources, Inc. (NYSE: XCO), and Cimarex Energy Co. (NYSE: XEC).

In a note to investors, Dahlman Rose writes, "The Oily Group decreased 1%, while the Gas Growth Group decreased 4%. The prompt month oil contract decreased 2%, while the prompt month gas contract decreased 5%. Gulf of Mexico (GOM) Shelf companies were top performers this week followed by Permian Basin operators. GOM Shelf outperformance was driven by strong outperformance of McMoRan Exploration and Energy XXI, up 15% and 7% respectively, with expectations seemingly high from multiple drilling catalysts on the shelf of the GOM. Companies with exposure to the Deepwater GOM and Haynesville were the weakest performers this past week."

Dahlman Rose goes on to say, "We continue to think horizontal oil wells in the Permian Basin may be providing some of the best economics in the US. We have been mapping the activity of operators targeting the three different plays (2nd/3rd Bone Spring; Abo/Wolfcamp; Avalon/Leonard Shale). We have included several maps of the activity on pages 3 and 4. We expect this activity will be of particular interest with several exposed companies presenting at Enercom's Oil and Gas conference in Denver this week. One negative data point that has arisen from our data gathering has been the high water cuts that seem to follow these wells, as it might increase operating costs and could create hydraulic issues with a horizontal well. But, the production rates (up to 1,500 BOEPD initial rates) are doing well to overwhelm any concerns."