The oil and gas industry seems to be in a holding pattern, with oil prices stuck around the mid-$40 per barrel level and new production stagnant at many oil and gas companies. So analysts are starting to look toward next year for companies that are expanding rather than contracting that could pull the industry further out of its funk.
"The narrative has changed from survival to growth," Wunderlich Securities analyst Irene Haas wrote in a report Thursday.
The firm is fairly bullish on improving oil prices, changing its outlook for next year to $55 per barrel versus its previous estimate of $50. The firm expects prices to stay around $44 this year. Wunderlich held its forecasts for natural gas prices, predicting $2.20 per thousand cubic feet equivalent for the third quarter, $2.50 for the fourth quarter and $2.70 for 2017, although those figures could tick up further given an improving supply/demand picture.
Which companies could ride the wave of improving commodity prices with meaningful growth? Haas' favorite names include Callon Petroleum (CPE) , Matador Resources (MTDR) , Synergy Resources (SYRG) and WPX Energy (WPX) .
Callon has been adding properties through the downturn, including some in West Texas' Permian Basin from three private entities in April for $303 million. So have Matador, which has been thought to be a potential takeover target because of its valuable properties in the Delaware Basin, and Synergy, which picked up properties in Colorado in May from Noble Energy for $505 million.
WPX has been more of a seller, shedding natural gas assets in Colorado's Piceance Basin to Kayne Anderson- and Warburg Pincus-backed Terra Energy Partners in February for $910 million to boost liquidity and focus more on the Permian and Bakken.
It seems to be working. Moody's Investors Service changed its outlook on WPX to stable from negative last month.
"WPX has improved its liquidity and leverage through a series of actions, including $1.2 billion of assets sales in 2016 and a recent equity offering that will add almost $540 million to the company's cash balances," Moody's senior analyst James Wilkins said.
Wunderlich's Jason Wangler likes Continental Resources (CLR) , which is big in the lucrative Scoop/Stack oil and gas play in Oklahoma; Gulfport Energy (GPOR) , which has seen a pullback in its shares but has low-cost natural gas wells in the Utica Shale; Earthstone Energy (ESTE) , which hopes to resume drilling in South Texas' Eagle Ford Shale again if oil prices cooperate and could even make some acquisitions given its strong financial position; and Ring Energy (REI) , which has been able to increase Permian production in the first quarter despite no new drilling.
Fellow analyst Vedran Vuk likes larger companies such as Devon Energy (DVN) -- which has been lightening up with asset sales, including the pending sale of its 50% stake in the Access Pipeline that could push its divestitures to nearly $3 billion -- and Newfield Exploration (NFX) , which could see growth from its Scoop and Stack assets and has a solid balance sheet.