Author Archives: Scalper1

Domestic oil production stocks have staged a remarkable rebound, alongside the 14-week rally in oil prices. Despite a number of the stock rising more than 100% during the run-up, nearly all still remain far below their 52-week highs. There are a few exceptions. Stocks including Callon Petroleum ( CPE ), Diamondback Energy ( FANG ) and Parsley Energy ( PE ) are poised to retake highs established in 2014. While their EPS are projected to continue declining through this year, all are forecast to see a sharp profit rebound in 2017. Callon is a good example of why the three are outperforming many of their oil patch brethren. It cleared a cup-with-handle base April 20, is now 20% above the base’s 9.68 buy point and 4% below a high set in July 2014. Like many stocks in the industry, Callon peaked in June 2008, as oil prices stabbed to highs near $150 a barrel. Callon is puny by oil business standards: $138 million in 2015 revenue. It teetered on the brink of collapse in 2007-08, as the failure of an offshore project caused earnings to collapse and revenue to retreat, despite spiking oil prices. The company responded by getting out of offshore work and placing its emphasis on gathering acreage in the Permian Basin. Located in West Texas and southeast New Mexico, the Permian has gained new life as horizontal drilling techniques have opened its multilayered formations to exploitation. While larger players are more diversified, Callon’s Permian focus has allowed it to claim a 41% initial rate of return at $41 per-barrel oil prices, putting it well ahead of most of domestic producers. That makes it an early mover in an industry where many larger companies won’t see a profit until oil reaches $50 a barrel or higher. The price of West Texas Intermediate oil has remained largely above $41 since mid-April. It has not touched $50 since October. Callon has also managed to recover thanks to a conservative debt load, well within the bounds of group peers. Analysts’ consensus projects earnings will contract sharply for a second straight year in 2016, then rebound 300% in 2016. Revenue, which declined in three of the past four years, is forecast to surge 36% this year and 44% next. Callon’s chart position — poised just below a 2014 high — is important due to a factor called overhead supply. This comes into play when existing shareholders who bought near previous peaks have held on waiting to offload shares at or near the price where they purchased. As Callon has advanced, it has overcome just about all of its overhead supply. Moreover, areas of overhead supply are not much of an obstacle after a couple of years have passed since they were formed. Oil producers Parsley Energy, RSP Permian ( RSPP ) and Diamondback Energy are Permian producers, all carry relatively modest debt and all are tinkering with new highs. Most the oil industry’s major industry think tanks have projected a rebalancing of oil supplies in the second half of this year or entering 2017.  Supply data has progressively appeared to support those views. That combination gives good cause for optimism, and is largely responsible for helping to fuel the speculative lift oil prices. But economic data does little to suggest any kind of significant, pending rebound in demand. And oil producers around the world — a group with a poor track record of balancing production with the market’s needs — remain ready to push production higher as soon as prices reach each company’s predetermined target levels.