BMO BMO analyst Jeremy McCrea has a novel method for uncovering value in the domestic oil patch,
“Each year, the best-performing E&P stocks are typically those that had a large multiple expansion. When we discuss multiples, we are referencing an EV/ PDP (Proved Developed Producing) ratio, which essentially describes what an investor believes a company’s undrilled inventory/land is worth (taking a company’s EV less PDP). By looking at only this undrilled land value, we can isolate a key component of a company’s EV and the most arbitrary value from a consensus/investor point of view. The change in ‘perception’ of how investors view/value this undrilled land is historically one of the bigger drivers for multiple change. The best/notable wells each month give an early indication of where this multiple could be changing … Veren (Montney): Veren continues to see strong performance from its 4-well West Gold Creek Montney pad … Baytex (Duvernay): We have seen some impressive Duvernay wells from Paramount lately and based on some technical debriefs, this geological fairway looks to continue up into BTE’s Duvernay land … Obsidian (Bluesky): The “waffle design” wells continue to flow strongly and rank in the top 5 of industry ‘bitumen’ wells - a rather difficult achievement … Surge (Frobisher): Surge continues to show very strong Frobisher wells, with the most recent well topping our chart - the 3-3 well producing an astonishing 633 bbls/d over 31 days. We also highlight Rubellite, Headwater, and Advantage”