Oil & gas minnows Nighthawk Energy (LSE: HAWK) and IGAS Energy (LSE: IGAS) have both jumped this morning, following positive news flow. Indeed, Nighthawk has issued an upbeat production update, while IGAS has benefited from the news that chemicals giant, Ineos is planning to invest up to £640m in shale gas exploration and production across the UK.
Production update
Nighthawk jumped by as much as 16% in early trade this morning, after the company issued its monthly production update.
The company said daily average gross production in October was 1,886 barrels of oil a day and gross production is currently in the region of 2,500 to 2,600 bbl/d. What’s more, the company announced that is currently in the process of capturing more reserves from existing wells by reconfiguring them and had identified 17 new drilling locations within the Snow King discovery area.
Moreover, Nighthawk’s management sought to reassure investors following the recent oil price slump. According to management:
“… Recent declining oil prices are concerning to many US-based operators such as Nighthawk. However, with our operating margins as high as 60% to 70%, we can earn a reasonable rate of return on our drilling capital at realized oil prices as low as $50 per barrel…”
Great news for existing holders.
Undervalued
Today’s news from Nighthawk comes after a rough couple of months for the company’s share price. Over the past five months, Nighthawk’s shares have fallen by around 50%. However, thanks to these declines, Nighthawk’s shares are now attractively priced.
In particular, for the six months ended 30 June 2014 the company reported earnings per share of 0.39p. Based on these figures, with production increasing, it’s reasonable to assume that the company will be able to report full-year 2014 earnings per share of 0.78p. These figures put the company on a forward P/E of 8.7 at present levels.
Still expensive
On the other hand, IGAS looks expensive at present levels and it’s not clear how today’s news — which is good for the UK fracking industry as a whole — will affect the company.
Nevertheless, IGAS began drilling its third UK shale gas well at Ellesmere Port, Cheshire only a few days ago, as part of the company’s plan to validate a geological model allowing it to plan for future development activities. This should prove to be a future catalyst.
But unless the company makes a huge find soon, it could be some time before IGAS’s shares look to be good value for money. Indeed, at present levels the company is trading at a 2015 forward P/E of 560 and 2016 P/E of 46. As IGAS is trading at such a lofty valuation, if anything goes wrong, the company’s share price could quickly fall back to earth.
