By the time you read this, you’ll likely know whether E&Ps—in the face of swooning global equity markets in early February—used this earnings season to woo new investors and bolster E&P stock valuations that trailed moves in crude prices for much of last year.

The early reporting E&Ps knew what to deliver. Anadarko Petroleum Corp. said it’s focusing on capital efficiency coupled with a significantly expanded share buyback, potential dividend increases and ongoing improvements in its credit metrics. It cited these investor friendly goals “rather than materially increasing our capital expenditures to pursue greater production volume.”

Pioneer Natural Resources Corp. said it would sell noncore assets to create a pure-play Permian producer, leading to “improving reported cash operating margins and corporate returns.” Assuming $55 per barrel, 2018 capex would be covered by cash flow supplemented by asset sales. Pioneer raised its dividend, announced plans for a stock buyback to offset employee stock awards and predicted returns on capital employed reaching 15% in 2023 from 5% this year.

These moves, of course, are aligned with a more disciplined, returns-focused strategy designed for E&Ps to generate free cash flow (FCF = cash flow > capex) for investors.

Raymond James published a report titled, “Why Improved Capital Discipline Makes Sense for E&Ps,” and argued that investors will need to accept higher multiples in valuing energy stocks, akin to multiples assigned to companies in chemical manufacturing or primary metal manufacturing, etc. In part, this reflects “a new risk paradigm” as E&Ps also increasingly move to “manufacturing” mode.

If E&Ps make a sustained commitment to a returns-focused, FCF-generating model, then “investors will ultimately need to change their approach to valuing the group,” said the report. This is because if E&Ps moderate the pace of drilling to better align cash flow and capex, the result—all else equal—will be a reduction in cash flow/EBITDA and a slowdown in net asset value (NAV) creation.

Obviously, “all else equal” includes an E&P’s stock price, so lower cash flow and EBITDA mean higher multiples of price/cash flow and enterprise value (EV)/EBITDA. And if the pace of drilling slows, then the oft-cited ability to “pull forward” NAV decelerates, raising the price/NAV ratio.

Why should investors accept higher multiples for possibly slower growth and NAV creation?

The Raymond James report looked at companies in commodity extraction/production and other sectors it viewed in the same light as the “manufacturing” mode being adopted by E&Ps. Using an EV/EBITDA valuation metric, the E&P sector traded at a multiple of 7.2x in early January, almost 2 to 3 turns below the 9.1x and 10.1x multiples of the primary metal and the chemical manufacturing sectors, respectively. Major oil and gas companies traded at multiple of 8x.

“At the very least, E&Ps should gravitate toward trading back in-line with the majors,” it said.

While outspending cash flow to pull forward NAV growth may have made sense in a higher, more constant oil price environment, the odds are that an E&P today “will have to navigate a significant disruption in commodity prices,” the report said. In any five-year period during the last 30 years, the price of crude has seen a “pullback of at least 25%” almost half the time.

In a three-scenario analysis—an outspend, neutral and underspend scenario—the report cited the neutral and underspend cases as creating greater NAV over time than the outspend. This reflected, in part, the same risks seen in the 2014 to 2016 downturn, when the oil price “shock” left more leveraged E&Ps with a sole option: issuing costly, highly dilutive equity at a “very inopportune” time.

Underlying the Raymond James thesis is also the view that the standardized discount rate of 10% traditionally used for reserve valuation is no longer appropriate. The 10% discount rate was put in place decades ago, when inflation was much higher and the yield on the 10-year U.S. Treasury, for example, was 13% in 1982, the report said.

Given the move by E&Ps to manufacturing mode, Raymond James cited the example of using a “blended” discount rate of 8% for producing assets and 12% for other assets.

The findings: “The NAV from a drilling program that slightly underspends cash flow discounted at 8% is almost identical to that of the outspend scenario discounted at 10%,” it said. “We believe that value lost from the NAV due to slower development activity can potentially be offset by a more favorable discount rate and be justified in receiving a higher multiple.”