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Estimated Net Present Value (NPV) of $48 a share is 50% higher than stock price for low-debt, hold-rated Imperial Oil (NYSEMKT:IMO). Released today, fourth quarter results displayed a greater-than-expected reduction in unlevered cash flow (Ebitda) relative to crude oil and natural gas prices. In situ oil sands production at Cold Lake, Imperial’s highest volume oil area, may have had higher expense with lower volume between phases of cyclic steaming.

Our valuation capitalizes cash flow at unlevered multiples (PV/Ebitda) related to reserve life (Adjusted R/P) for natural gas and oil, and to an industry multiple for downstream. Latest calculations result in NPV concentrated 5% on natural gas, 79% on oil and 16% on downstream. A seemingly high cash flow multiple for oil reflects long-life and conservative reporting of proven reserves among other factors. Pointing to expected oil price recovery, futures prices for the next six years averaged US$62 a barrel recently.

Originally published on January 29, 2009.

Source: Imperial Oil: Extra Price Sensitivity in Heavy Oil