JPMorgan Calls Concho Resources, Pioneer Natural Resources Top Large-Cap Picks In Permian-Focused E&P Group

According to Michael Glick of JPMorgan, the Permian Basin is positioned at the low-end of the U.S. tight oil cost curve and is "poised" to benefit from efficiency and productivity gains.

Glick initiated coverage of eight Permian Basin-focused E&Ps on Wednesday with a "positive view." The analyst noted that operators with scale can benefit from a "resource multiplying effect" by generating years of economic inventory.

The Permian Basin

"Within the Midland Basin, we estimate an NPV-15 breakeven of ~$43/bbl for the core plays currently under active development," the analyst explained. "The Wolfcamp B and Lower Spraberry along the western portion of the basin axis post breakevens around ~$35/bbl.

“Additionally, as our basin analysis demonstrates, operators have posted impressive efficiency and productivity gains over the past three years, a trend that we expect to continue going forward, albeit at a lesser pace, as operators shift toward longer laterals and continue to optimize completions and lateral placement."

Related Link: JPMorgan Calls EQT, Gulfport Energy Top Picks From Appalachia-Focused E&P Group

Top Large-Cap Picks

Glick named Concho Resources and Pioneer Natural Resources as his top large-cap picks within the space.

The analyst stated that Concho has a "deep inventory" high rate-of-return locations in the Delaware Basin. Given the company's "success" in the Delaware Basin, the analyst sees the potential for a "positive rate of change" in the Midland Basin.

On the other hand, Pioneer Natural Resources has the industry's "largest and most prolific acreage position" within the Midland Basin. The analyst added that even though Pioneer has lagged its Permian peers over the past 12 to 18 months on a weaker capital efficiency metric, the company is expected to realize a positive turn in capital efficiency along with differential oil growth to "drive outperformance from here."

Top Small- And Mid-Cap Picks

Glick named Parsley Energy Inc PE and Diamondback Energy Inc FANG as his top small- and mid-cap picks. The analyst stated that both companies are well positioned in the core of the Midland Basin and have strong balance sheets.

Glick also noted that Parsley's Wolfcamp B and Diamondback's Lower Spraberry regions generate "among the strongest well-level returns" in the United States.

Other Initiations And Price Targets

Shares of Cimarex Energy Co XEC were initiated with a Neutral rating and $113 price target.

Shares of Energen Corporation EGN were initiated with a Neutral rating and $64 price target.

Shares of Laredo Petroleum Inc LPI were initiated with an Underweight rating and $9.50 price target.

Shares of RSP Permian Inc RSPP were initiated with a Neutral rating and $30 price target.

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