peacefulvalley59

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    • Thu Aug 14th 08:15 AM
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      Negative Trend for Oil Exploration and Production Stocks
      While your article accurately notes the recent decline in crude and natural gas prices, it contains serious shortcomings. First, most E&P company stocks did not rise proportionately with the sharp rise in energy prices we witnessed in the earlier part of the year. Analysts wisely discounted a portion of this rise as a bubble-type phenomena. Second, E&P companies are more accurately measured by multiples of cashflow rather than earnings. Anadarko, for example, produced discretionary cashflow of $2.31 billion in Q2---the equivalent of approximately $19.62 on an annualized basis. This means the company, at $57 per share, trades at a stunningly low 2.9x cashflow. Third, there is extreme disconnect presently between equity values an Net Asset Values (ie: reserves) with many E&P companies trading at roughly 50% to 60% NAV. In summary, there is very little downside in the higher quality large E&P companies even with a return to what many industry experts would consider sustainable pricing: $80 crude and $8 natural gas.
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