The world's cheapest oil stock?
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The world's cheapest oil stock?
20 December 2023
The company featured in today's report is based in a region that isn't just rich in oil, but where oil can be produced at some of the world's lowest production costs.
Over the past ten years, half a dozen Western companies had started producing oil in this region, and their shareholders were making money hand over fist.
However, the region always had a dark secret – its oil exports broke an international contract dating back to 1973. Earlier this year, the inevitable happened: a judge declared the oil exports illegal, and as a result, all production stopped.
Since then, the band of countries affected by this issue have been negotiating a new agreement. Everyone wants to – and NEEDS to – see oil exports resume.
Given the financial pressure (each month costs a billion dollars in lost income), a resolution seems a matter of time. There is a specific reason why it is likely to come sometime after February 2024.
Once a new agreement is in place, the oil companies in this region will likely experience a re-rating:
- A restart of the production will get them back to normal operations.
- The end of the legal uncertainty will probably give the entire sector much higher valuation multiples.
- Big Oil is likely to try to buy one or the other of these companies.
There is ONE stock that seems best suited to benefit from this entire situation.
Assuming production restarts in 2024, it would currently have a valuation of around 0.3x EV/EBITDA based on 2025 estimates. This is almost too ridiculously low to be true.
The stock price could go up by a multiple once the situation is resolved. In the meantime, the company in question is debt-free, with plenty of cash in the bank, and it's not losing any money even under the current difficult circumstances.
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