Shore Capital has said smaller UK-listed oil and gas companies remain well-positioned to weather the recent drop in crude prices, despite a broader sell-off in the sector.
Brent crude has fallen to a four-year low, dragged down by concerns over higher production quotas, tariffs and the risk of a global recession.
ShoreCap noted that most of the small-cap companies it tracks are now trading as if oil were below $50 a barrel (well under current levels), suggesting the market may be overshooting.
Tullow Oil PLC (LSE:TLW) has the highest sensitivity to falling prices, with its valuation implying a breakeven price of around $55 a barrel.
In contrast, companies focused more on natural gas, such as Touchstone Exploration Inc (AIM:TXP, TSX:TXP, OTC:PBEGF) in Trinidad and Savannah Energy PLC (AIM:SAVE) in Nigeria, are less affected by the weaker oil outlook.
While the sector tends to move in step with oil price sentiment, ShoreCap said strong operational performance could still set individual stocks apart.
It highlighted Capricorn Energy PLC (LSE:CNE, OTC:CRNZF), which is working to amend exploration concessions in Egypt, a step that could boost its reserves and improve the returns on future investment.
The broker added that most companies are not planning major changes to their investment strategies. Tariffs and OPEC+ decisions have little direct effect on their day-to-day operations, and capital budgets have been designed to withstand market swings.
Companies such as Pharos Energy (LSE:PHAR) and Afentra plc (AIM:AET, OTC:STGAF) are expected to continue with development projects in Vietnam and Angola respectively, which ShoreCap believes could still generate value at current prices.