- The ongoing US blockade of Iranian ports has disrupted oil and gas flows through the Strait of Hormuz, driving WTI crude prices to near US$100 per barrel and fueling global inflation.
- Despite the high-price environment for commodities, certain small-cap oil and gas stocks are trading at significant discounts due to market fear and short-term operational hurdles.
- CF Energy, Touchstone Exploration and PetroTal stand out as value plays with solid fundamentals, including low price-to-cash-flow ratios and strategic plans to navigate current market volatility.
The United States continues to block Iranian ports, as US president Trump’s recently extended ceasefire hangs in the balance, in an effort to force the country to halt its nuclear program, curtail its missile capabilities and weaken its stronghold on the Strait of Hormuz, which has until recently accommodated the safe passage of about a quarter of the world’s annual oil consumption.
Iran’s foreign minister Abbas Araghchi has since condemned this dynamic, noting that “blockading Iranian ports is an act of war and thus a violation of the ceasefire,” reinforcing a stalemate that has seen the price of WTI average about US$90 per barrel since the war began in February, about double COVID pandemic lows seen in 2021, fostering inflation across a global industrial complex still very much dependent on oil to remain productive.
This article is a journalistic opinion piece which has been written based on independent research. It is intended to inform investors and should not be taken as a recommendation or financial advice.
Resilience on both sides of the conflict is resulting in an environment of heightened fear and volatility, with oil and gas investors capitalizing on near-term commodity price increases, while remaining acutely aware that dislocations, regardless of the market, always revert to the mean once animal spirits simmer down and calmer conditions prevail.
As geopolitical fear muddles the near-term future, a question readers should be asking is, ‘Which oil and gas stocks are being overlooked and undervalued amid all this tension, despite fundamentally sound operations, yielding potentially attractive entry points for a long-term investment?’
3 small-cap oil and gas stocks trading at a bargain
To answer this question, I used The Globe and Mail’s stock screener to search for oil and gas stocks with negative year-over-year returns, despite a profitable underlying companies and low price-to-cash-flow ratios, suggesting that the market is underestimating their ability to ride through the ongoing war between US/Israel and Iran and build long-term shareholder value.
After combing through a few dozen income statements, three names in particular stood out to me for their untapped potential:
- CF Energy: 0.68x P/CF, with shares down by 54.35 per cent year-over-year (YoY).
- Touchstone Exploration: 1.63x P/CF, with shares down by 52.78 per cent YoY.
- PetroTal: 2.2x P/CF, with shares down by 7.27 per cent YoY.
CF Energy
One name worth considering is CF Energy, market cap C$6.92 million, an energy provider active in China focused primarily on natural gas, with a portfolio of 1,503 km of pipelines and 22 operating stations across numerous provinces ideally positioned to offset the country’s substantial reliance on the Strait of Hormuz.
The company, founded in 1995, and listed on the TSXV in 2008, has built a strong financial track record, most recently highlighted by:
- Revenue growth from 355.2 million CNY in 2021 to 435.6 million CNY over the trailing twelve months.
- Decreasing operating expenses from 85.3 million CNY in 2021 to 75.6 million CNY over the tailing twelve months.
- Stable net income averaging more than 20 million CNY annually over the period.
CF Energy’s most recent quarter, Q3 2025, continues to substantiate resilient operations, despite a slow-down in the Chinese real estate market, with 292 million CNY (C$56.6 million) in revenue, down by 22 per cent over the trailing nine months, supported by net income of 6.4 million CNY (C$1.2 million), up by 10 per cent over the period, fostering further conviction in leadership’s capital allocation skills.
Looking ahead, CF is making a concerted effort to expand its services into the clean energy and carbon management sectors, building upon already operational projects – including the Haitang Bay smart energy cooling facility and the Sanya city battery swap network for electric vehicles – which are better positioning the company to capitalize on the renewable energy transition.
Despite attractive income statements and a proactive orientation towards the future of energy consumption, CF Energy stock (TSXV:CFY), last trading at C$0.10, has given back 54.35 per cent YoY and 81.90 per cent since 2021.
Touchstone Exploration
Our next oil and gas value stock is Touchstone Exploration, market cap C$55.20 million, an explorer, developer and producer active on onshore properties in Trinidad and Tobago, where it stands as the country’s leading onshore producer, averaging 4,686 barrels of oil equivalent per day (boe/d) in 2025.
Touchstone operates seven facilities, including three natural gas plants, with gross capacity of ~72,119 boe/d, affording it ample flexibility to strengthen its leadership position, leveraging a growing market share over the past few years that has allowed the company to scale into profitability. Here’s a breakdown:
- Revenue growth from US$42.9 million in 2022 to US$45.8 million in 2025.
- EBITDA growth from US$8.3 million in 2022 to US$17.3 million in 2025.
- Net income growth from a loss of US$3.19 million to a US$10.88 million gain over the period.
The company’s 2026 work program will make an aggressive play on rising oil and natural gas prices as the Iran war wages on, including a multi-well development program at its 80 MMcf/d Central block, the commissioning of its Cascadura compressor, which is expected to add an immediate ~1,000 boe/d of natural gas production, as well as potential fracture stimulation at Cascadura and the Central block to unlock bypassed production and
reserves. The company has also identified multiple anomalies on its exploration blocks with the potential to unlock a new onshore play, related to offshore discoveries near Guyana, which it intends to evaluate in the near future.
With Touchstone projecting that it will breach covenants on its senior debt by year end, investors have been dumping the stock, affording it a market cap six times smaller than the after-tax value of its estimated 2025 proven and probable reserves. In my opinion, this flight overlooks the company’s proven operations and domestic leadership position, which grant it a differentiated ability to access capital, harvest value from rising commodity prices and turn market sentiment around.
Touchstone Exploration stock (TSX:TXP) has given back 52.78 per cent year-over-year and more than 90 per cent since 2021, last trading at C$0.17.
PetroTal
My last oil and gas stock deserving more market recognition is PetroTal, market cap C$469.36 million, the largest crude oil producer in Peru. The company’s 100-per-cent-owned flagship asset, the Bretaña Norte oil field in Peru’s Block 95, began production in 2018, having yielded more than 31 million barrels to date.
PetroTal grew production from 4,131 bopd in 2019 to 19,473 bopd in 2025, while growing proven and probable reserves from 38 million barrels to 110 million barrels, valued at US$1.16 billion after tax. That said, net income has been falling over the past few years, decreasing from US$188.5 million in 2022 to US$44.18 million in 2025, indicating a focus on growth at the expense of profitability.
The company intends to adopt a more efficient course in 2026, guiding for reduced production of 12,000 bopd, enabling numerous operational reinforcements expected to yield a 20-25 per cent reduction in operating and G&A expenses, heralding a return to form in 2027. These include:
- Moving to a third-party drilling provider to strengthen scheduling certainty and operational reliability.
- Deferring non-essential infrastructure spend.
- Suspending its dividend.
- A US$80-90 million capital program, including two development wells at Bretaña, expected to lay a path to 20,000 bopd.
Backed by a leadership team full of oil and gas heavy hitters, including a former VP of operations at Ecopetrol, a former CFO at Frontera Energy, and a president and CEO who has been creating value in Peru’s oil industry for more than 30 years, the company is in goods hands to deliver on its near-term goals, improving income statements while maximizing long-term upside, which should drum up investor enthusiasm in the currently sky-high price environment.
PetroTal stock (TSX:TAL), last trading at C$0.51, has given back 7.27 per cent YoY, with investors as of yet uncommitted to the company’s plan to shift focus from production growth to liquidity, granting readers an overly pessimistic price, given past operational success, to build a long-term investment.
Takeaway
While the stock market has always been, and will always be, the site of irrational exuberance – think Internet stocks in the 1990s, meme stocks during the COVID Pandemic, or AI stocks after the release of ChatGPT in 2022 – the lucky winners in the spotlight often cast a shadow over lesser-known, thinly-traded names, whose profitable businesses and falling share prices make them prime candidates for value, leaving it up to the meticulous investor to recognize and capitalize.
Join the discussion: Find out what investors are saying about these oil and gas value stocks on the CF Energy Corp., Touchstone Exploration Inc. and PetroTal Corp. Bullboards, and make sure to explore the rest of Stockhouse’s stock forums and message boards.
