After an event that included attacks on two separate Aramco oil facilities in Saudi Arabia earlier this month, oil prices saw an immediate spike. While prices have softened substantially since the attacks, the price of crude is still higher than before the attacks. The market's immediate and strong reaction to a possible decrease in supply highlights the fragile nature evident in the oil markets and pricing.
Any additional tension or uncertainty in the region could push prices much higher in the future. This scenario would benefit U.S.-based Parsley Energy (NYSE:PE) and, given the strong push against Iran by many American consumers and policy experts, those interested in investing wisely should pay attention.
A promising frontier
Parsley Energy is an independent oil and natural gas company located in the very rich Permian Basin in Texas and New Mexico, and was founded in 2008. This company's revenue for the second quarter ending June 30, 2019 was $0.499B, which was a 6.57% increase year-over-year. For the twelve months ending June 30, 2019, revenue was $1.892B, a 33.9% increase year-over-year. Parsley's profit margin as of June 30, 2019 was 13.69%. Also, according to Parsley's second quarter results, business is booming. "Net oil production increased 10% quarter-over-quarter and 28% year-over-year to 86.6MBo per day. Total net production averaged 140.1 BBoe per day," a recent press release indicates. These improvements are noteworthy because continued higher production indicates stronger future growth.
Parsley's management is also intent on growing free cash flow, an important factor for any investor to consider. The company's free cash flow discipline is admirable, and assuming oil prices remain fairly stable or go higher in the future, Parsley's financials will only improve due to increased profit potential. In light of this objective, Parsley in August announced the initiation of a $0.03 quarterly dividend to be paid to investors beginning this month. Both of these factors should encourage investor optimism in both the financial health and growth opportunities at Parsley.
Uncertainty still looms
Still, many factors influence the pricing of oil. Few have to do with the natural occurrence of supply and demand or free markets. Governments, states, and even corporations, can interfere in the markets, mostly on the basis of geopolitical interest and money. It is a very complicated matter, and these unknown factors certainly play an important role in the world's oil markets. This is why it is always wise to look at the big picture, instead of just focusing on the numbers. In doing so, regardless of any personal or political conflict, one can make a better decision about personal finances and investing.
Given the increasingly uncertain geopolitical climate, volatility seems to be the rule of the day. Threats of more war in the Middle East over the Iran/Saudi conflict, trade wars, and heightening tension between Iran and its other adversaries could arise, bringing more chaos to the oil markets. Should more attacks occur, or war against Iran become a reality, supply could be threatened, and not just temporarily. In that environment, oil prices would rise substantially in my opinion, and that would certainly generate higher demand for U.S.-based Parsley Energy that is already positioned for long-term growth.