Why Jagged Peak Energy Is an Oil Stock You Could Buy

Jagged Peak Energy [stock_market_widget type="inline" template="generic" color="default" assets="JAG" markup="(NYSE: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] is coming off a terrific 2018. The company saw terrific sales growth last year on account of a massive increase in production, which allowed it to offset the impact of lower energy pricing to some extent. But can Jagged Peak repeat its performance once again in 2019 considering the volatility prevalent in the oil and gas industry? Let’s find out.

Delivering terrific Production Growth

Jagged Peak’s annual production increased 102% in 2018 to 34,200 barrels of oil equivalent per day.

Jagged Peak’s annual production increased 102% in 2018 to 34,200 barrels of oil equivalent per day. If that sounds impressive, then you’d be happy to know that such solid growth in the company’s output was achieved at a lower cost base than the company’s original guidance.

Jagged Peak’s lease operating expense for the year came in at $3.40 per barrel of oil equivalent, which was slightly lower than the mid-point of its $3.25-$3.75 per BOE guidance range. Also, its general and administrative expenses were below the lower end of its guidance range. Looking ahead, Jagged Peak is on track to further lower its cost base as the company’s organic proved developed finding and development costs fell 23% in 2018.

Not surprisingly, Jagged Peak expects its production to rise once again this year at a lower cost base. The company has outlined a capital budget of $580 million to $630 million, the mid-point of which represents a 12% decline over last year’s outlay. However, the company anticipates that its production will increase to a range of 36,500 to 37,900 barrels of oil equivalent per day. The mid-point of the guidance indicates an 8% year over year increase in production.

So Jagged Peak is on track to deliver efficient production growth in 2019 as it tries to improve the state of its balance sheet even in a $50 per barrel oil pricing environment. Jagged CEO Jim Kleckner said:

“We believe that we can efficiently get to the size and scale where we can provide organic, sustainable free cash flow to our investors. By continually pressing on capital efficiency, we remain confident in our ability to create shareholder value on our contiguous acreage blocks in the core oil window of the southern Delaware Basin.”

Oil Price Volatility Could Pose a Challenge

It remains to be seen how a volatile oil pricing scenario impacts the company’s performance this year, as Jagged Peak is already witnessing the impact of weak energy prices on its financial performance. The company’s revenue for the fourth quarter of 2018 was up nearly 33% year over year, but the gains were tempered by a 17% annual decline in average realized prices.

So if oil prices take a turn for the worse, Jagged Energy will feel the pinch. But there’s a good chance that the company’s performance might improve on the back of reduced costs and the recent uptick in oil prices. In such a scenario, Jagged Peak Energy could deliver more upside in 2019 because it is well-prepared to do well in a weak oil pricing scenario, which makes it a good bet in case prices rise.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


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