CHICAGO - Oil explorers focused on high-margin shale drilling from Texas to North Dakota are set to outperform Big Oil this year.
EOG Resources Inc., Pioneer Natural Resources Co. and Continental Resources Inc. are poised to reap bigger returns for investors than energy titans 15 times their market values as they devote almost all their drilling capital to higher-margin, domestic crude wells, said Gianna Bern, founder of Brookshire Advisory and Research Inc. in Chicago. Houston-based EOG is estimated to more than triple profit in 2013 to $1.92 billion.
The domestic price rally "is bullish for U.S. shale development and benefits producers with a high U.S. production profile," Bern, a former BP crude trader, said in a telephone interview. U.S. shale "is where the growth is."
West Texas Intermediate, the benchmark crude for onshore U.S. oil, has risen 16 percent this year as new pipelines and rail links eroded a supply glut in the Great Plains. London- traded Brent, the basis for two-thirds of international prices, fell 1.9 percent, undermining major international producers and contributing to second-quarter earnings from Exxon Mobil Corp. and Royal Dutch Shell Plc that disappointed investors last week.
Exxon and Shell already are lagging behind some of the dominant domestic shale explorers in delivering returns to investors. Pioneer has risen 70 percent this year, while Oklahoma City-based Continental has increased 33 percent. EOG, the biggest owner of drilling rights in the Eagle Ford Shale in southwest Texas, has risen 27 percent.
By comparison, Exxon has gained 6.2 percent this year, while Shell fell 0.9 percent.
While Shell and Exxon's profits were also diminished by shrinking margins from refining crude into transportation fuels, shale will be the driver for performance in energy-company earnings reports scheduled this week. Unit Corp., a Tulsa-based owner of drilling rights in the Bakken shale, is expected to post its highest second-quarter profit in two years this week, according to analysts' estimates compiled by Bloomberg.
That compares to a 57 percent plunge disclosed by Exxon and a 20 percent decline by Shell last week.
Pioneer, which shed deepwater Gulf of Mexico and African discoveries in recent years to focus on U.S. onshore drilling, boosted production by 17 percent and posted the biggest second- quarter profit in company history last week. The stock surged 13 percent on Aug. 1, the most since November 2011, after the Irving, Texas-based producer reported a pair of drilling successes in Texas's Wolfcamp formation.