(Important) Our E&P Coverage Universe Ranked By Reserve NAV Per Share
Oil and gas E&P stocks have come a long way in a very short period. Just three months ago, the near-term outlook for 2024 was poor due to a surprisingly weak fourth quarter in which supply and demand both went against the bulls.
What a difference a few months can make! E&Ps are firmly in bull market mode, and the outlook has turned rosy. Saudi Arabia’s production cut is cleaning up the supply side, while global demand is surprising to the upside.
E&P stocks have benefitted from the macro tailwind. The “torquiest” names have led the pack—whether Baytex Energy (BTE:CA), Crescent Point Energy (CPG:CA), or Strathcona Resources (SCR:CA). If this bull market turns out to have legs, E&Ps will gravitate toward their proved and probable (2P) net asset value (NAV) per share. Due to the uncertainties associated with 2P reserves, this value also represents a ceiling level at which many E&Ps—but not all—become overpriced relative to intrinsic value. For many E&Ps, having shares that trade at 2P NAV per share will increase the potential downside. It could be a signal for an owner of the shares to sell.
At the moment, our coverage universe trades at a significant discount to 2P NAV per share. We wanted to take a closer look to see if any names jump out as attractive opportunities due to an unusually large discount from reserve values per share.