On all the oil and gas companies I own, the common complaint is that they are massively undervalued, why won't they go up? It's true that every company I hold, including Obe is less than 2.5x annualized funds flow based on 2q which was a very poor price environment. They will b around 1.5 times cash flow with crude at $85 and nat gas at $3.5. So with such small multiples where are the buyers?
The answer is that there are only a very few buyer's interested in this sector and the few buyers want dividends. Companies that pay a dividend are valued around 3.5-6 times funds flow. An excellent example is cj which pays a 10% dividend yield at 35 cents 2q cash flow which when annualized is over 5x funds flow on its current stock price.
So in essence the premium valuations go to the dividend payers. If this industry attracts some interest there may be a rerate that takes the less than 2x multiple stocks to the stratosphere but we need broader interest for that to happen.
I am prepared to be very patient as I believe my stocks are massively undervalued and some day soon that will be recognized by new entrants to this sector. For those of you who are impatient I would suggest pushing management for dividends as it seems that is the best way to get short term price appreciation.