Canadian Natural Resource Ltd (USA) (NYSE:CNQ)
Considering how much energy investors want to be in oil right now, its rather staggering that Canadian Natural Resources is selling at such a discount. Despite proven reserves that are over 86% liquids, the company is still valued at only $10.47 per barrel of oil equivalent. One of the major reasons for such a low value is that the proven reserves the company has are in crudes that are more expensive to produce, namely in situ oil sands and enhanced oil recovery for heavy oil. Not only are these types of extraction more expensive to produce, but the lack of takeaway capacity has many Canadian tar sands trading at a deep discount to other North American crudes.
It’s possible that this company could be an ideal takeover candidate for a company that wants to get into the oil sands business, but $43.6 billion is a lot of money to fork over. Once Keystone XL comes online and oil sands can easily make it to the Gulf, oil sands prices will probably get up to other local crude prices.
Chesapeake Energy Corporation (NYSE:CHK)
There has been a lot of talk about how Chesapeake is undervalued by the market, but there isn’t always an exact value for the company associated with that statement. For those curious about how much of a discount it is trading for, perhaps an enterprise value of about $11.34 per barrel of oil equivalent might give you an idea. Granted, about $4.63 of that per-barrel price is debt and only 30% of its total reserves are in liquids. But for a company that is in the top three for land holdings in eight of the United State’s top shale plays, there is a lot of upside and pretty decent value despite the $31 billion market value.
What a Fool believes
Several major oil companies are in a precarious position. Overall production growth has been relatively stagnant and cash reserves are filling up. In order to meet their growth projections, they very well may need to look at a company like the ones mentioned above to inorganically bump their numbers. While the enterprise value per barrel of oil equivalent lends a little perspective to the value of these companies, it certainly doesn’t tell the whole story, but this metric should at least stoke some interest.
The article 3 Attractive Acquisition Targets for Oil Majors originally appeared on Fool.com and is written by Tyler Crowe.
Fool contributor Tyler Crowe owns shares of Linn Energy, LLC. You can follow him at Fool.com under the handle TMFDirtyBird, on Google +, or on Twitter, @TylerCroweFool.The Motley Fool recommends Ultra Petroleum. The Motley Fool owns shares of Devon Energy and Ultra Petroleum and has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, Short Jan 2014 $15 Puts on Chesapeake Energy, Long Jan 2014 $30 Calls on Ultra Petroleum, Long Jan 2014 $40 Calls on Ultra Petroleum, and Long Jan 2014 $50 Calls on Ultra Petroleum.
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