While the shale boom has certainly died down over the past year due to weaker oil prices, it is far from over. The U.S. is sitting on an unexpected bounty of economically recoverable oil and gas, which energy companies expect to continue to tap over the next couple of decades.
Many of these companies can still make a fair profit on producing from shale even with lower commodity prices. In fact, I've already highlighted the five best stocks to invest in the shale boom. Today, I want to run through five more that I'm most excited to watch due to their compelling upside.
1. Whiting Petroleum (NYSE:WLL)
As the top Bakken Shale producer, Whiting Petroleum is already a fairly large oil company. That said, it has had a rough time with the weaker oil price over the past year as it took on a lot of debt when it acquired Bakken Shale rival Kodiak Oil & Gas. To address those debt issues Whiting raised $3 billion in debt and equity capital to bolster its liquidity and reduce its interest expense. What the company needs now are better oil prices in order to really ramp up its returns. As the slide below notes, if oil prices increase to $70 per barrel it would boost the company's internal rate of return for a Bakken well from 54% to 82%.
Investors will also want to watch to see if Whiting can get its well costs even lower, as that will push returns higher and improve its profitability.
2. Concho Resources (NYSE:CXO)
One other oil company I have been watching for quite some time is Concho Resources. The company is sitting on an unbelievable amount of oil in the Permian Basin, with estimates that it could one day recover 3.7 billion barrels of oil equivalent from its acreage position. It is a position that drove 30% production growth last year, however, now that oil prices are weaker Concho sees its growth slowing to 18%-20% in 2015. What I'd like to see is the company continue to cut its well costs, which are already down 20% year over year, so that it can accelerate its growth rate and drill really high return wells as oil prices continue to improve.
3. Antero Resources (NYSE:AR)
Switching gears a little bit, Antero doesn't produce much oil at all. Instead, the company is focused on natural gas production in the Marcellus and Utica Shale plays. Unfortunately for Antero, gas prices have been weak over the past few months as gas production is stronger than demand. This is coming at a time when the company is really pumping a lot of natural gas as it has the highest production growth rate in its peer group as noted on the slide below.
What I'd like to see is an improvement in natural gas prices before considering an investment in Antero as its growth isn't creating the value it could if gas prices were higher.
4. Emerge Energy Services (NYSE:EMES)
One of the differences between drilling shale plays versus conventional oil and gas development is the need for sand. As a result, frack sand producers like Emerge Energy Services have enjoyed robust growth in recent years. While that growth has ceased at the moment due to a much lower activity level, it has the potential to rebound sharply when conditions improve. What will fuel that rebound is the fact that energy companies have discovered that using more sand per well has been the key to improved well performance and returns, suggesting that future demand for sand could be even stronger than before. That plays right into the hands of Emerge Energy Services as it has the sand reserves to profit from growing demand when it begins to materialize.
5. MarkWest Energy Partners (NYSE:MWE)The shale boom is also fueling quite the building boom for pipeline companies. One pipeline company that's really growing fast is MarkWest, which is now the second largest natural gas processing company in the U.S. Its capacity is only expected to keep growing as it has 20 major processing and fractionation projects under construction. That said, future growth might not be as robust due to the slowdown in the shale boom. That's why I'd stick this stock on a watch list for now until growth reemerges, as other pipeline companies have greater visibility into future growth due to their diversification and focus on demand driven projects.
The shale boom is a game-changer for the U.S. and for investors. That said, the boom is on pause right now as it has led to an excess in oil and gas production. Until demand improves, some of the smaller shale-focused companies, like the five on this list, are better off on a watch list.
Matt DiLallo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.