What the “Real” Oil:Gas Ratio Is Saying about Natural Gas Stocks

Posted by Keith Schaefer

Share on Facebook

Tweet on Twitter

Operating netbacks 6to1 2

Intermediate natural gas weighted stocks in Canada are valued higher—sometimes a LOT higher—than oil stocks, despite oil being worth 35 times more than gas.

And that could mean significant price weakness for already battered natural gas stocks, says Haywood Securities analyst Alan Knowles.

“People think (the stocks of) gas companies have corrected, but they’ve only partially corrected,” he told me in a phone interview.  “The correction hasn’t kept pace with how far it should have gone,” given how low natural gas prices have moved.

At first glance, Knowles’ says the gas companies are NOT valued more highly than the oils—but that’s comparing the two groups at the industry standard of 6:1; where 6 barrels of natural gas are considered equal to one barrel of oil.  See his chart below that shows this.  The green dots are the leading intermediate oil producers—Crescent Point, Legacy Oil and Gas, Baytex and Petrobakken, and the red triangles are the gas weighted companies.

The gas stocks are clearly cheaper on this chart, which measures them in terms of the value of their production — $50,000 per flowing barrel up to $250,000; again all based on the industry standard 6:1 ratio.


Operating netbacks 6to1 2