The oil price plunge aside, there have been some dramatic changes in the oil industry over the past few years. Thanks to technological advances in horizontal drilling and deepwater drilling technology, oil companies have been able to unlock oil trapped in tight rocks deep below the Earth's surface. This technological shift has the potential to shift the balance of power in the oil market away from OPEC and toward countries with these abundant unconventional resources.
The shift is also bringing billions of dollars of investments into the industry, which in turn is spawning new companies or shifting the business plans of legacy oil companies and creating a new breed of up-and-coming oil companies. Three that have caught my eye are Concho Resources Inc. (NYSE:CXO), Cobalt International Energy (NYSE:CIE), and Oasis Petroleum (NYSE:OAS). All three have an exciting future once normalcy returns to the oil industry.
Formed in 2004, Concho Resources underwent a couple notable shifts over the past decade before fine-tuning its focus. Today the company is laser-focused on using horizontal drilling technology to unlock vast quantities of oil trapped in the legendary Permian Basin oil field of West Texas. After a series of deals over the past decade the company now holds 1.1 million gross acres in that legacy oil basin, which it estimates contains 3.7 billion barrels of oil equivalent resource potential.
Concho Resources grew production in the play by a 35% compound annual rate from 2007 through 2014. That growth rate is being slowed by the dramatic drop in the price of petroleum as Concho and its industry peers pull back on spending and growth until oil picks up. However, Concho still expects to grow its production by 16%-20% over last year's level in 2015. That's due in part to the company's well optimization plans, which have nearly doubled its rate of return from last year's level based on a future estimated oil price of $60 per barrel. This suggests that once oil busts through that level Concho will be perfectly positioned to accelerate drilling and resume its robust growth rate.
Ready to turn discoveries into production
Cobalt is a significantly different kind of oil company. In many ways it's akin to a development-stage biotech company as it currently doesn't produce any oil. Instead, the nearly decade-old company has helped to fund the discovery of 10 deepwater oil fields in the Gulf of Mexico, Angola, and Gabon. These discoveries are beginning to turn into development projects, and by the next decade managements expects nine of its discoveries to produce oil and cash flow.
That said, investors don't have to wait years before Cobalt actually starts producing oil. The company expects to see first oil from the Heidelberg project in the Gulf of Mexico next year. The project is led by Anadarko Petroleum (NYSE:APC) and is expected to produce 80,000 barrels of oil per day, which should generate operating cash flow of $200 million per year for Cobalt at a $75 per-barrel oil price. That is scheduled to be followed in 2018 by the Cobalt-operated Cameia oil field in Angola, which could deliver $700 million in annual cash flow at a $75 per-barrel oil price. If everything goes according to plan, by 2022 all nine fields could be online and producing $2.5 billion in cash flow each year. That's a lot of future cash flow potential for a company that today has a market cap of $3.7 billion, making it one of the most promising up-and-coming oil companies in the deepwater.
Founded on the Bakken
Founded in 2007, Oasis Petroleum has built its business solely around developing the Bakken shale formation of North Dakota and Montana. The company has rapidly grown its size by aggressively acquiring land in the region, and it now owns more than 500,000 acres. It has also boosted oil production from a paltry 1,000 barrels of oil equivalent per day, or BOE/d, in 2007 to an estimated range of 47,000 to 49,000 BOE/d in the first quarter of 2015.
Like most oil companies these days, Oasis has slowed its growth due to weak oil prices. The company is presently focused on managing its balance sheet and improving its returns so that it can remain profitable. However, like Concho, it's ready to pounce once the price of oil rebounds.
The oil industry is going through a rough patch, but that's nothing new -- it has a history of highs and lows. What is new this time around is that the industry has several up-and-coming oil companies that are primed to take their operations to the next level once prices rebound. Oasis, Cobalt, and Concho are among the most exciting of these companies, which is why I think they are worth investors' attention.