Contrarian Buy-recommended Imperial Oil (NYSEMKT:IMO) offers unlevered appreciation potential of 28% to a McDep Ratio of 1.0 where stock price would equal Net Present Value (NPV) of US$48 a share. Fourth quarter results released on February 2, disclosed unlevered cash flow (Ebitda) exceeding our expectations of three months ago in the upstream business while falling short in the downstream. NPV appears supported by cash flow and reserve life in an industry context.
In a new resource effort, the second winter drilling season is underway in the Horn River area of northeast British Columbia. Imperial and Exxon (NYSE:XOM) have a 50/50 joint venture which holds the largest land position in the emerging shale gas play. The partners increased their acreage position 50% to 309,000 net acres from 192,000.
Meanwhile the trend for oil, 79% of the value in Imperial, continues up with futures prices for the next six years for oil above the 40-week average. While IMO stock trades below its 200-day average of $38 a share, we characterize our Buy rating as Contrarian Buy.
Originally published on February 3, 2010.