Image source: JZNIOSH via Wikimedia Commons.
The OPEC nations have immense power over the oil market. But then what would you expect from a group of producers that control more than 40% of the world's production and and 70% of its proven reserves? Hearing stats like that might make one think that investing in energy is a losing battle, but despite the staggering statistics, not all companies are completely beholden to the whims of OPEC. In fact, some companies are having immense success regardless of OPEC's efforts to wipe out competitors with cheap oil lately.
So we asked three of our energy contributors which companies can beat OPEC at its own game and still be profitable. Here's what they had to say.
Matt DiLallo: While the oil-price plunge is having a deep impact on the U.S. oil industry, not all companies are struggling to survive. In fact, some are still thriving despite the downturn, as they've found ways to make just as much money, if not more, at lower oil prices. Chief among those that are thumbing their noses at OPEC is EOG Resources (EOG 0.59%).
When oil prices plunged late last year, EOG Resources pulled back the reins on its peer-leading oil growth engine. In fact, after growing oil production by double digits for the past few years, the company's production is expected to be flat in 2015, as the company turned its attention to pushing its costs as low as possible to improve its returns. The result is better returns at a $65 oil price than the company was earning when oil was $95 per barrel a few years ago:
Source: EOG Resources investor presentation.
With improved returns in hand, EOG Resources is ready to restart its oil growth engine and resume double-digit oil production growth starting next year. In fact, the company already has a head start, as it has pre-drilled a number of wells that simply need to be completed (i.e, fracked) so that oil can begin flowing into pipelines. That said, it's not going to grow at all costs, so if oil prices wane, EOG Resources will pull back the reins again by delaying more well completions. In a sense, it's starting to become a new swing producer in the oil industry, which was a title Saudi Arabia used to hold.
Tyler Crowe: Here is one reality that we are all willing to admit: Most OPEC nations can produce oil for much less than we can, and it will be very hard to capture market share from them. However, there is one realm of the oil and gas industry where we do have a price advantage over the OPEC nations, and that is in natural gas liquids, or NGLs, such as ethane, propane, and butane. Thanks to the shale boom in both natural gas and oil, there are millions of barrels of these in-between fuels in ample supply domestically. And unlike with oil, we have an opportunity to export our excess production around the world. One company more than almost all others has taken this opportunity by the horns, and that is Enterprise Products Partners (EPD 0.48%).
Enterprise already had a massive distribution network of natural gas liquids pipelines and processing facilities across the nation, and now it has leveraged that existing infrastructure to become one of the world's most prominent exporters of natural gas liquids. So far in 2015, it has exported more propane than every other OPEC nation:
Source: Enterprise Products Partners investor presentation.
And the company isn't planning on stopping there. Enterprise has plans to expand its NGL exports significantly over the next couple of years by expanding its storage, processing, and offloading capacity at five of its seven export terminals to export a growing supply of these products.
We may never be able to beat OPEC on oil prices and export volumes, but when it comes to NGL exports, we have flown past OPEC, and Enterprise is leading the charge.
Dan Caplinger: OPEC's purpose in boosting production is obvious: Temporarily push oil prices low enough to crush high-cost shale producers and then boost them back up to keep all the profit for themselves. Yet as Matt discussed with EOG Resources, U.S. shale-oil producers can see through that strategy, and Continental Resources (CLR) is just one more of many companies taking steps to prepare for a brighter future.
Continental has already taken big steps to cut costs, reducing well expenses in the Bakken by 15% and minimizing drilling time to be more productive. It has slashed its capital spending, but it has also made the strategic decision to wait before completing already-drilled wells, and CEO Harold Hamm has encouraged its shale-oil peers to follow suit. By looking to take advantage of lower operating expenses, Continental will be in a better position to benefit from any future recovery in oil prices if it can wait to bring new wells online until they'll be more profitable. Continental certainly faces some financial challenges that could prove problematic if oil's slump lasts for years to come, but the company should be able to fight OPEC's moves a lot longer than many would have expected.
