Energy Analytics

Attractive E&P Yields Are Becoming Difficult for Investors To Ignore

byAndrew McConn

Finding high-yield investments has become more difficult in recent years. One reason why E&P stocks have outperformed all sectors year-to-date (XOP up 88% versus S&P up 23%) is because of attractive free cash flow (FCF) yields, even after the sector has rallied. Nearly all E&P stocks continue to offer double-digit FCF yields — based on our estimates in 2022 — and screen attractive versus stocks in other sectors.

2022E FCF Yields (Assuming Strip Commodity Prices)

Chart displaying 2022E FCF Yields (Assuming Strip Commodity Prices)
Source: Enverus Valuation Analytics. “FCF Yield” is calculated as 2022E Free Cash Flow/Market Cap. Commodity-price assumptions and market caps are based on market values as of Oct. 28, 2021.

Even in lower price scenarios that are more representative of the market’s long-term expectations, E&Ps’ FCF yields still screen attractive.

2022E FCF Yields at Lower Price Scenarios

Chart displaying 2022E FCF Yields at Lower Price Scenarios
Source: Enverus Valuation Analytics. Each data point represents a company’s annualized FCF yield in each quarter during 2022. WTI/HH price scenarios include $50/$2.50, $60/$3, $70/$3.50 and Base Case (Strip).

But short-term FCF yields can only reveal so much about a sector’s overall value. The market is ascribing value to potential growth — or long-term yield sustainability — as indicated by a positive correlation between higher valuation multiples and our estimates for high-quality well inventory lives.

However, accurately estimating inventory remains difficult for investors. We see significant dislocations between market value and intrinsic value at the individual stock level. Attractive relative-valuation opportunities exist for investors willing to invest the time and effort.

Valuation Multiples Versus High-Quality Inventory Life by Basin Peer Group

Chart displaying Valuation Multiples Versus High-Quality Inventory Life by Basin Peer Group
Source: Enverus Valuation Analytics. Basin peer groups represent groups of E&Ps tagged to a primary basin. “Inventory Life” is calculated as inventory of un-completed wells with a sub-$45 WTI (or sub-$2.25 Henry Hub) half-cycle breakeven/wells completed in next 12 months. “EV / CPV” is calculated as (market enterprise value/current production valuation).
Picture of Andrew McConn

Andrew McConn

Andrew McConn is director and co-head of Commercial Intelligence at Enverus, where he covers large-cap E&P companies and leads product development for the Commercial Intelligence offering. He joined Enverus in 2019 to develop Operator Intelligence — a predecessor to Commercial Intelligence that features valuation, trend and benchmarking analysis for more than 200 U.S. E&Ps. Prior to joining Enverus, Andrew worked as an analyst for energy-analytics and E&P businesses for a decade. He holds a B.A. in corporate communication with a minor in economics from the University of Houston and is based in Houston.

Subscribe to the Enverus Blog

A weekly update on the latest “no-fluff” insight and analysis of the energy industry.

Related Content

Enverus Blog
Energy Transition
ByCarson Kearl, Enverus Intelligence® Research (EIR) Contributor

Enverus Intelligence® Research (EIR) and many others have published at length on the coming wave of load growth that starkly contrasts more than a decade of stagnation.

Enverus Intelligence® Research Press Release - OPEC+ cuts and Trump tariffs force price downgrade
Analyst Takes Trading and Risk
ByAl Salazar, Enverus Intelligence® Research (EIR) Contributor

The following blog is distilled from an interview on CBC’s “The Eyeopener,” hosted by Loren McGinnis who interviewed Enverus Intelligence® Research’s (EIR) very own Al Salazar. Click here to listen to the full radio segment.  Consequences for U.S. Shale and...

Enverus press release - Renewing Alberta’s path for renewables
Energy Transition
ByAdam Robinson, Enverus Intelligence® | Research (EIR) Contributor

Since 2020, the demand for Power Purchase Agreements (PPAs) has surged, driven by tax incentives, corporate clean energy goals, and increasing power needs.

Enverus Press Release - Alternative fuels M&A focus turns from policy boosts to business resilience
Power and Renewables
ByKatherine Paton-Ilse

Most projects that enter the interconnection queues never get built. The queues are growing increasingly crowded, and backlogs continue to persist across multiple ISOs.

energy-transition-research
Energy Transition
ByThomas Mulvihill

Enverus Intelligence® Research (EIR) has updated its long-term load forecast model, predicting a 30% increase in total U.S. power demand by 2050, down from the previous projection of 39%.

Enverus_Press_Release_EV_Regional_Volatility_Thumbnail
Power and Renewables
ByNatalia Opie Davila, Customer Success Lead at RatedPower

Solar panels can be coupled or linked to a battery either through alternating current (AC) coupling or direct current (DC) coupling. AC current flows rapidly on electricity grids both forward and backward. DC current on the other hand, flows only in...

Enverus/RatedPower Press Release - RatedPower publishes 2025 Global Renewable Trends Report examining the green landscape
Power and Renewables
ByNatalia Opie Davila, Customer Success Lead at RatedPower

Solar irradiance, the power of solar radiation measured in W/m2 — is an essential metric when designing a PV system. One of the most important factors to consider when designing a solar photovoltaic (PV) system is the level of solar...

Enverus Press Release - Returning to growth: US power demand forecast highlights impact of data centers, EVs and solar
Power and Renewables
ByLaura Rodriguez

What are some of the challenges grid operators face in the clean energy transition and what are some practical solutions? The record pace of renewable energy capacity installation around the world is presenting unique challenges for power grids in integrating...

Enverus Press Release - Enverus Earns Top Workplaces Honors for Fourth Consecutive Year
Operators
ByLukaa Jasem

The following blog is distilled from Intelligence® Research (EIR) publications and EIR’s very own Andrew Dittmar’s media statements on the Diamondback acquisition. With U.S. upstream M&A reaching $105 billion in 2024—the third highest as recorded by Enverus—the market shows no...

Let’s get started!

We’ll follow up right away to show you a quick product tour.

Let’s get started!

We’ll follow up right away to show you a quick product tour.

Sign up for our Blog

Register Today

Sign Up

Power Your Insights

Connect with an Expert

Access Product Tour

Speak to an Expert