E&P professionals often focus too much on forecasting oil and gas prices — but there’s a far more valuable and accessible approach: quantifying the price paid for the assumed oil and gas (O&G) volatility wager. Here’s why this matters:
1. It’s much easier to assess and quantify than trying to predict future O&G prices.
2. It’s far more valuable than you might think. Consistently winning more and losing less over time tends to create far greater value than simply betting on price direction.
3. It gives you clear odds on the strategic O&G volatility wager you’re considering — helping you make more informed, higher-quality decisions.
E&P Lessons of the Week:
Slide #1: Natural Gas (NG) equity volatility exposure shows negative asymmetry — meaning the downside risk is greater than the upside potential. This imbalance demands extra compensation to justify the risk.
Slide #2: We’ve been negative on MidCap E&P valuations for approximately 12 months — not because of oil price outlooks, but because of the price paid for the assumed volatility profile. Now, with recent shifts in market dynamics, MidCap M&A opportunities can finally become accretive from a volatility pricing perspective.
Slide #5: Evaluating E&P companies through an options pricing lens can transform your business. It’s cost-effective and often delivers significantly more value than many other strategic initiatives. Just like operational efficiencies compound over time, making O&G volatility wagers with favorable odds can be an incredibly powerful driver of long-term success.
Slide #7: CurveAlpha’s Q1 2025 report card — based on December 2024 predictions — underscores the strength of our analytics. We consistently capture major volatility-driven valuation mispricings. And when we’re wrong, we tend not to be wrong by much — minimizing downside and maximizing long-term value.