2024-04-02 08:53:06 ET
Summary
- Surge's assets are of higher quality than they may appear at first glance, future increases in booked recovery rates will drive the 2P-NAV higher.
- Assuming $80 WTI, Surge generates 17% DACF yield.
- It is currently yielding monthly dividends of 6.2% p.a. with a potential increase in payout ratio on the horizon.
- Detailed DCF valuation points to , suggesting a 39% upside to fair value. I recommend Surge Energy as a Buy for investors looking to capitalize on rising oil prices.
Investment Thesis
Russian government just ordered its oil producers to cut oil output to contribute to OPEC+ cuts. This comes at the same time when EIA dramatically lowered its production estimate for US shale oil. The current narrative is calling for an oil price of $100 a barrel this year.
The narrative drives the stock prices, and as a value investor, I would much rather invest in times when the narrative calls for $40 prices with no future for oil. Still, despite the bullish narrative, the stocks of Canadian O&G producers remain cheap....
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Surge Energy: Cheaply Valued And Positioned For Strong Upside