Hunting for value in the oil and gas sector is not easy at the moment. The oil majors have rallied considerably in recent months, leaving their valuations stretched in a still-tepid price environment, while many smaller players, some of which boast excellent assets, are either mired in debt or endlessly locked in rounds of fundraising. However, one good candidate for investment on value grounds is Ophir Energy (OPHR), an explorer and producer with on- and offshore assets in Asia and Africa. That's because the cashed-up group looks attractive on a range of asset-based valuation metrics, all of which throw in the company's promising developmental assets in Equatorial Guinea, Tanzania and Indonesia for very little. What's more, the market has ascribed an enterprise value to Ophir that prices its 2P reserves at just $5.60 (£4.62) per barrel, well below the sector average of closer to $10.
- Proven production
- Excellent development assets
- Big discount to book value
- Net cash position
- Exploration risks
- Tanzania asset uncertainties
Naturally, that figure only means something if the oil cannot be profitably extracted. Yet the company expects this year's output from its Bualuang and Sinphuhorm wells in Thailand - set to average 11,000 barrels of oil equivalent a day - to deliver underlying post-tax cash flow of between $15 and $23 per barrel. That's no mean feat given Brent crude has spent most of 2016 below $50 a barrel, and shows that Ophir can rely on a significant source of cash generation to help it build its portfolio elsewhere. It is heavy investment in exploration (net cash fell $185m in the year to the end June) that may partly explain why Ophir has not significantly re-rated, unlike many other dollar-earning resources stocks. The absence of a dividend probably hasn't helped either.