NEW YORK (TheStreet) -- With exposure to a low-cost region and a healthy balance sheet, Diamondback Energy (FANG) is one of those rare oil and gas producers that can easily weather a down market, even if crude oil prices fail to recover next year.
The Midland, Texas-based company produces oil from the Permian Basin in West Texas. That's one of the lowest-cost oil and gas production regions in the U.S., says Gabriele Sorbara, an analyst at Topeka Capital Markets.
Futures for West Texas Intermediate crude oil have fallen by nearly 39% over the last three months to near $55 a barrel. Diamondback's stock has dropped by nearly 17% during the same period but is still up almost 17% so far in 2014. Shares were changing hands Tuesday morning up 47 cents at $61.54.
Some analysts expect the price of a barrel of crude oil to recover to $70 next year as oil producers scale back capital budgets.
If current low oil prices persist well into 2015, however, oil and gas producers operating in North Dakota's Bakken shale and in Colorado's Niobrara shale will suffer, because they need WTI crude prices at $65 to $75 to break even.Even worse, the industry is overleveraged and underhedged compared to historical standards, Sorbara wrote in a Dec. 8 report. Consequently, in a down market, some producers operating in high-cost plays might even wind up in bankruptcy court.
On the other hand, producers such as Diamondback, Pioneer Natural Resources (PXD) and Concho Resources (CXO) , which operate in the Midland Basin, the core region of the Permian Basin that offers some of the best economics, could continue turning profits even in a sub-$60 WTI oil price environment. This is because these producers require oil to average from $45 to $60 a barrel to break even.
Diamondback owns around 85,000 net acres in the Midland Basin. The company's average costs were a little less than $45 a barrel of oil equivalents in the first nine months of this year, which compares with realized prices of $76.80 a barrel of oil equivalent in the same period.