Oil prices are expected to come under pressure after Iran and world powers reached a nuclear agreement.
The agreement, the details of which are expected to be finalized before June, could see sanctions on Iran being lifted.
Given that Iran has one of the biggest oil reserves in the world, news of the agreement pushed crude oil prices lower. However, traders and speculators may have been overreacting. Even if the sanctions placed on Iran are lifted, the country is in no position to immediately increase its output since very little investment has gone into the oil and gas sector because of the sanctions.
In the near-term, the most important thing to watch in the oil and gas market will be whether Saudi Arabia announces a production cut at OPEC’s meeting in June.
Meanwhile, crude oil prices could get some temporary respite after a weak jobs report halted the U.S.’s dollar’s rally. A weaker dollar is a positive for commodities. Still, the medium-term outlook for oil prices remains bearish due to the glut in the global market.
Oil and gas stocks continue to struggle, given the bearish outlook for crude oil prices. However, this has also created an opportunity for bargain hunters as there are now many fundamentally sound companies with very cheap valuations.
One such company is Ikkuma Resources Corp. (TSX-Venture: IKM), a Calgary-based diversified junior oil and gas company. IKM has holdings in both conventional and unconventional projects in Western Canada.
On Monday, IKM provided its 2014 year-end reserves. As of December 31, 2014, the company’s total proved plus probable reserves totaled 25,852 million barrels of oil equivalent. Oil accounts for 179 million barrels, while natural gas liquids (NGLs) account for 750 million barrels of the total proved and probable reserves.
IKM has an assumed oil price of $64.04 per barrel for WTI oil to calculate the reserves. The price assumed by IKM is a little higher than the average price for WTI oil this year.
The net present value of IKM’s proved and probable reserves discounted at 10% or P10 as it is known in the industry is $208.08 million. Based on 80.16 million shares outstanding, this translates to roughly $2.60 per share. Even if the proven and probable reserves are lowered to account for lower oil prices, the company’s shares are trading well below the NPV of its proven and probable reserves. IKM is certainly attractively valued at the moment.
