Here's Why Approach Resources Stock Is A Buy At The Moment

We are upbeat about Approach Resources Inc.’s (NASDAQ:AREX) prospects and believe it is a promising pick right now.

Over the last 30 days, the Zacks Consensus Estimate for the company’s second-quarter and full-year 2019 bottom line has been revised upward. Approach, carrying a Zacks Rank #2 (Buy), also has a strong earnings surprise history, having managed to beat the Zacks Consensus Estimate in three of the past four quarters, the average positive earnings surprise being 12.7%.

Foothold in Prolific Permian

Approach is a pure-play Permian stock, operating 150,000 net acres in the basin. The company has identified roughly 1,350 horizontal drilling locations in the prolific basin with gross resource potential of 950 million barrel of oil equivalent (MMBoE). This is likely to continue to back the company’s production and reserve growth. Last year, Approach reported year-over-year growth in proved reserves of 46%.

Declining Well Cost & LOE

Since 2011 to the recent months of 2019, Approach has managed to lower well costs by more than 55%. The company also cut down lease operating expenses (LOE) per barrel of oil equivalent (BoE) by 20% from 2014 to 2018.

Lower expenses will continue to drive the company’s unhedged profit margin. Notably, from 2016 to 2018, Approach reported a massive 66% improvement in unhedged profit margin per BoE.

Clean Energy Demand

Natural gas comprises 40% of the company’s total production volumes. With the demand for clean energy demand on the rise, the focus is now on reducing greenhouse gas emissions. The company has significant natural gas volumes, which positions it well in this aspect.

Approach’s Permian foothold is also a positive when it comes to natural gas production. This is because among all the key producing plays in the United States, Permian records the largest daily natural gas volumes after Appalachia. According to the U.S. Energy Information Administration, daily natural gas production in the Permian will increase a sequential 241 million cubic feet in June.

Other Stocks to Consider

Other prospective players in the energy space are Apache Corporation (NYSE:APA) , Ecopetrol S.A. (NYSE:EC) and Anadarko Petroleum Corporation (NYSE:APC) . While Apache and Anadarko carry a Zacks Rank #2, Ecopetrol sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Apache has average positive earnings surprise of 6.6% for the last four quarters.

Anadarko Petroleum has average positive earnings surprise of 6.6% for the last four quarters.

Ecopetrol is likely to witness earnings growth of 25.3% through 2019.

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