Submitted by v10climbz t3_yhs505 in wallstreetbets
So let me teach you degenerates a little about the oil and gas industry. They have a P/E ratio of 7.45 their EV/EBITDA is steadily decreasing its currently at around a 10.0. Debt to equity ratio is around .41 and continues to decline over the past five years. When looking into oil companies you need to understand something called proven reserves. These are the oil/gas reserves the company has access to but doesn’t utilize all at one time. They have it under lease (mineral lease) per acre of land. Almost all their reserves are in Texas which isn’t a bad things. Often oil companies list these reserves on their balance sheet or especially their income statements. Be very wary of companies that do this. Diamond Back isn’t one of them.
They have 1.8 billion barrels of oil under their control. Which is very good they can keep the wheel spinning for years. They deal primarily in unconventional shale horizontal drilling operations. That basically means they drill down into a porous oil rich shale rock turn the drill head into the oil producing zone and go horizontally for a couple miles. They then put a perforator with explosive charges on it and send it down into the hole. They then blow up the shale allowing the oil and gas to flow smoothly. They have multiple years of drilling possibilities and peak production in the Permian basin isn’t expected until 2028. Plenty of time for profit to be made. I wouldn’t hold this company for more then two years because their business model isn’t going to last forever, just long enough for the stock price to move up as the continue to increase their cash flow. Their operating cash flow jumped to 3.5 billion last quarter. These wells in the Permian and Eagle Ford shale can be redrilled in multiple directions and multiple depths. All you need to know is Permian Basin/Eagle Ford/west Texas/Eastern New Mexico is all very prime drilling opportunities rich with oil and accessible drilling formations. It’s cheap to drill in Texas. The average break even price for the Eagle Ford is actually 49$ per barrel for a new well. These shale wells won’t produce for more then four years so these companies will eventually be in trouble but that prediction is far from the 10ks they’ll produce over the next five years.
But talking about oil companies we also need to talk about the price of oil. Most of these oil companies in west Texas produce profit at 53$ a barrel for new wells. There’s a lot of money to be made. OPEC+ supply cuts seem like they’re here to stay. Inflation seems high as well. Projecting oil WTI at around 85-105 a barrel for the next year. Record profits to be expected yet the P/E ration in oil and gas is low. Nobody thinks oil is the future. It isn’t but these companies and their liquidity streams aren’t going anywhere in the next five years. Revenue will keep going up for small/medium cap US shale producers. Record profits to be expected yet no one is holding these companies because they don’t wanna seem environmentally unconscious. They’re a bargain for the retail investors. Some of the best value in the market is in the oil and gas sector. DM me for more oil companies.
Here’s their 10k
VisualMod t1_iuffjoj wrote
>TL;DR: The oil and gas industry is a great place to invest your money. The companies have strong balance sheets, low debt, and plenty of cash flow. The price of oil is expected to rise in the next year, which will lead to increased profits for these companies. However, you should not hold these companies for more than two years as their business model is not sustainable in the long term.