Are you confused?? Oil is trading near $90 US or $100 CDN and a price like that has always meant big profits for oil companies, especially those that do not have much gas. How long ago was it that oil was trading at much lower prices and there was still money to be made?
With operating netbacks of $50 to $60 per BOE big big profits were surely on the way.
When interest rates are very low one would be a fool not to borrow money and drill for oil. It is a no brainer, borrow at 7% and earn 20% by drilling, especially if you are investing in a company that has a multi year track record of 100% drilling success.
If you can find a company that trades at less than 5XCF, less than NAV, less than BV, has prime properties that have for years yielded drilling success and has an added kicker in that water flooding alone could well double the value of that company, then GO FOR IT! Common sense says buy big time. DO NOT BE SHY!
GEE WHIZ, if only one could find such a company to invest in.
Of course if it is a GAS company you are looking to buy, then keep these pointers in mind.
Gas used to trade for as much as $14 per mcf which at 6X was roughly equivalent to the price of OIL. More often gas would be priced in the $7 to $8 range but even at that price profits could be made. The better gas companies could BREAK EVEN at $4.50 gas. Nowadays gas is priced at $4.00 per mcf and making a profit is a very tough proposition.
The price of gas stocks are quite high. You will not find any of these trading at 50% of NAV or for less than 5XCF. But rather than look at the facts you have to look at the potential here:
1. Canada has lots of gas to sell.
2. SOMEDAY a pipeline will be built and when it does, boy oh boy !
3. Those savvy Canadian marketers will sew up both the European and Asian markets.
4. Why those places are paying $14.00 for gas and all we have to do is build a few pipelines across the mountains, erect a few liquified natural gas plants and then ship across a couple of oceans.
5. When all this gas from Canada, the U.S. and Australia does arrive why I bet those Europeans and Asians will still want to pay $14.00 per mcf for the gas.
DO NOT BE CONFUSED, it is all very simple, BUY WHAT IS HIGH AND GOING HIGHER !