Multi-Bagger Upside Potential Amid the Largest Oil Supply Disruption in History
10x upside potential - an oil producer in a $100 oil price scenario
This week marks the third week of the closure of the Strait of Hormuz, which has resulted in the disruption of over 10 million barrels per day of supply to the oil market. This disruption may increase as more Persian Gulf producers shut in production amid rising storage constraints, as Operation Epic Fury continues.
For an oil market that typically balances at the margin, and for which an even 1-2 million barrel per day deficit or surplus has historically caused large price swings, this disruption has accurately been called by the IEA the “largest-ever oil supply disruption” in history.
In my opinion, oil prices have yet to move high enough to reflect this reality. The longer the disruption persists, the higher oil prices may move, potentially well beyond what the current futures curve implies.
In this context, it makes sense to take a deeper look at how sustained higher oil prices could affect the cash flow and intrinsic value of a high upside potential oil producer. Remarkably, some of the highest oil price upside producers still trade at relatively low valuations with limited upside “priced in” - which I find particularly compelling.
At much lower oil prices, this company trades at a steep discount to its net asset value (NAV) per share, which increases substantially in a higher oil price environment with accelerated development made possible by higher cash flow:
Below, I walk through a detailed analysis of the cash flow and reserve potential of this company in a higher oil price environment, and what it could mean for its stock price going forward.
Disclaimer: This material is for informational and educational purposes only and should not be considered an investment offer, solicitation, or recommendation. Please consult a financial advisor and conduct your own due diligence.
