Summary
Diamondback Energy and Energen are not facing any risks related to oil flow in the Permian Basin since nearly their entire product is already on pipe.
They do have some exposure to weak prices in the Permian Basin but the two will still continue growing earnings at a robust pace.
Diamondback Energy and Energen have grown production by 46% and 34%, respectively, in H1-2018 and both will likely continue growing output at a strong double-digit rate.
Oil prices in the Permian Basin will improve substantially in the next 12-15 months as some major pipelines come online.
Diamondback Energy (FANG), which is in the process of acquiring Energen(EGN), will likely experience weak prices in the Permian Basin as the company will sell some of its crude oil at a discount. That may drag earnings but the negative impact will be offset by double-digit production growth. That’s also true for Energen. Both companies are still well positioned to post solid earnings growth.
Moreover, the large gap between oil prices in the Permian Basin and the US benchmark has shrunk considerably from its August peak as the market is getting more clarity on the deployment of new crude oil pipelines which will ease the supply bottleneck. The pricing environment in the Permian Basin will improve considerably next year as some major crude oil pipelines come online in H2-2019. That will drive further earnings growth for Diamondback Energy.
