Permian scale delivers strong cash at high oil prices. At $192.10 the market prices a fade. I see 20% upside to $230.71 on $78 oil and 5.5 times cash earnings.
Key points
- $87.30 per barrel Q3 oil realization shows Permian barrels still earn strong cash margins.
- $13.7 billion 2027 cash earnings estimate on $78 oil drives the upside case.
- $7.5 billion free cash flow funds debt paydown, dividends and buybacks.
The call
The market expects the good times to fade. At $192.10 the enterprise value is about $66 billion. That pays 4.8 times my $13.7 billion 2027 cash earnings estimate. That math only works if $87 oil falls back toward $65.
Quarterly revenue shows oil and scale leverage- Revenue reported
- Muse estimate
SEC filings to Q2 FY26; Q3-Q4 FY26E Muse estimates.
I expect oil to stay firm enough to prove that fear wrong. My 2027 case uses $78 oil and 370 million barrels of output. That leaves a 14% free cash yield that the market will reprice.
Target hinges on oil near 78 dollarsMuse arithmetic: 5.5x EBITDA less $11B net debt over 278M shares.
Valuation
| Driver | Figure |
|---|
| 2027 hydrocarbon sales | $17.6 billion |
| 2027 EBITDA, or cash earnings before interest and tax | $13.7 billion |
| Target multiple | 5.5 times |
| Less target net debt | $11.0 billion |
| Target equity over 278M shares | $230.71 |
EOG and Devon trade near 5 to 6 times cash earnings. A 5.5 multiple fits a low cost Permian leader. Upside is 20% to target with downside to $181 at $65 oil.
Risks
- Oil falls on OPEC supply or weak demand and cash earnings drop fast. Watch WTI strip and inventory reports.
- Permian gas stays weak on pipeline limits and drags revenue. Watch Waha basis and gas realizations.
- SGF insider selling pressures shares after its 9.1M share sale. Watch further Rule 144 filings.
What would change my mind
I would turn cautious if drilling costs rise so $4 billion of capex no longer holds output above 1 million barrels daily.