Investors have been caught by surprise as the price of oil has just slumped to a four year low, something very few investors predicted.
Unfortunately, the collapsing oil price has caught investors by surprise and as a result, investors have rushed to sell the shares of oil producers. On the other hand, these fire sales have created opportunities and after recent declines, Afren (LSE: AFR), Ophir Energy (LSE: OPHR) and Tullow Oil (LSE: TLW) all look attractive.
Perfect storm
Afren has been hit by a constant stream of bad news this year. Unfortunately, as the price of oil continues to decline it appears as if things are only going to get worse for the company in the near-term.
Nevertheless, for long-term investors Afren is a great pick. You see, depending on which broker you listen to, Afren’s net asset value is somewhere in the region of 130p to 150p per share, 30% to 50% higher than current levels. This a base case and assumes a worst-case scenario so the best case could be significantly higher.
Further, Afren is still a cash-generative business and despite short-term headwinds, the company has an exciting exploration pipeline lined up, which will yield results over time.
Even without additional production Afren is expected to report earnings per share of 14.10p this year, which means that the company is trading at a forward P/E of 7.4. In comparison, the wider oil & gas producers sector trades at an average P/E of 12.8, indicating that Afren’s shares should be trading at 180p.
Valuable assets
Ophir Energy has been commended by analysts in the past for the company’s attractive portfolio of hydrocarbon reserves. However, due to a number of well failures and a disappointing exploration campaign offshore Gabon earlier this year, the company’s share price has plummeted.
Still, Ophir has plenty of eggs in its basket and has continued on with its exploration campaign offshore Equatorial Guinea and Tanzania. City analysts have put the company’s net asset value at around 240p per share, although this figure does not account for any better-than-expected results in the company’s exploration programme — initial results indicate that Ophir has had some success in its exploration for hydrocarbons Tanzania, so the company’s net asset value could be revised higher in the near future.
Market darling
Tullow oil used to be one of the market darlings, having seen its share price skyrocket 1,450% during the 10-year period from 2002 to 2012. Unfortunately, now the company’s share price has fallen back to earth but for savvy investors, it could be the time to buy.
Indeed, at present levels Tullow’s share price is 50% below the company’s net asset value, which according to City analysts is in the region of 1,000p per share.
Of course, these figures are estimates, no one is able to tell the true value of Tullow’s oil reserves. Still, Tullow has long been considered to be a takeover target and the wider the gap between the company’s implied net asset value per share, and the actual share price, the more attractive the company is to predators.
