The past 12 months has been tough for oil and gas producers, as the market price for the black gold slid around 50%.
Brent crude oil has fallen from over $US110 per barrel in June to just $US55 per barrel today. Share prices of oil and gas producers have followed suite.
Indeed over the past six months Senex Energy Ltd (ASX: SXY), Drillsearch Energy Limited (ASX: DLS) and Beach Energy Ltd (ASX: BPT) have fallen 48%, 44% and 35% respectively.
But even the heavyweights like Woodside Petroleum Limited and Santos Ltd (ASX: STO) have been unable to avoid the selloff, down 8.5% and 43% respectively.
However with prices down, now could be the time to scope up one, or more, of these cheap-looking resources stocks.
| Senex Energy | Drillsearch | Beach Energy | Woodside Petroleum | |
| Market Cap | 397 | 378 | 1362 | 31416 |
| Cash | 76.6 | 152.38 | 411.3 | 2703 |
| Debt | 0 | 153.43 | 127.08 | 3326 |
| EV | 320.4 | 379.05 | 1077.78 | 32039 |
| 2P reserves (mmboe) | 39.9 | 28.3 | 66 | 1437 |
| EV/2P | 8.03 | 13.39 | 16.33 | 22.30 |
| Forecast P/E Ratio | 10.7 | 5.3 | 9.35 | 11.33 |
| Net Assets | 482.5 | 363.4 | 1870.78 | 16276 |
| Price/Book Ratio | 0.82 | 1.04 | 0.73 | 1.93 |
Source: Company annual reports. Figures in millions of dollars, unless otherwise stated.
As can be seen in the above table, shares of junior oil and gas producers appear to be offering more compelling value than their larger counterpart, Woodside Petroleum.
However dividends do play a part in valuation, particularly in this low interest rate environment. Woodside – Australia's biggest independent oil and gas producer – currently trades on a forecast fully franked dividend yield of 7% whilst Beach Energy is expected to pay a dividend equivalent to 3.7% in the coming year.
Senex and Drillsearch are not expected to pay dividends.
However for capital gains, of the three Cooper basin producers Senex Energy appears to offer the most compelling value. It has no debt, is currently undertaking a self-funded drilling campaign and has a production cost (excluding royalties) of $31.08 per barrel. It also derives approximately 90% of revenues in US dollars.
Foolish Takeaway
Given the current oil price weakness, now could be a better time than ever to grab some oil producers on the cheap. My pick of the bunch is Senex. However it should be noted Senex, nor its peers, is an investment for the fainthearted and any further commodity price weakness could again see it rapidly sold off.
But given that much of the falls are likely to have already taken place, I think investors looking for exposure to oil and gas could worse than add it to their portfolios.
