What are we looking for?
North American oil and gas producers that appear undervalued when compared with their large-cap peers.
The screen
The price of oil has risen significantly over the past few weeks, with benchmark West Texas intermediate crude crossing above US$70 a barrel for the first time since late 2014. There is little doubt that significant differences in international foreign policy views held by U.S. President Donald Trump compared with his predecessor have played a significant role in the rise in the price of oil. The U.S. plan for tough sanctions against Iran is likely the most recent significant driver. We investigate companies who are most likely to benefit from a rise in the price of WTI crude.
Today, we screen for large-cap North American oil and gas producers. We are looking for companies with a market capitalization greater than US$2-billion and that are currently producing. We then calculated the price per flowing barrel, which is a metric used to determine the relative value of an oil and gas company. The metric is made up by adding market cap and debt less cash, divided by production in barrels a day. It does not take into account the potential production from undeveloped fields.
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What we found
The results of our screen are provided in the accompanying table and they are ranked by price per flowing barrel, from lowest to highest. The companies with the lowest prices per flowing barrel appear undervalued relative to their peers. The average of the group is US$123,690, leading to the conclusion that Chevron Corp., Exxon Mobil Corp., RSP Permian Inc. and Viper Energy Partners LP are relatively overvalued when compared with their peers on this basis. The most undervalued company appears to be Cenovus Energy Inc., with a price per flowing barrel of US$52,026.
Investors are encouraged to do their own research before investing in any stocks listed here.
Paul Hoyda, CFA, is an account manager in the financial and risk division of Thomson Reuters and specializes in governance, risk and compliance.
Paul Hoyda, CFA