The oil crash has had a brutal impact on many mid-cap oil and gas firms: over the last six months, Ithaca Energy (LSE: IAE) has fallen by 65%, Ophir Energy (LSE: OPHR) has dropped 38%, and Enquest (LSE: ENQ) has shed 64% of its value.
Of course, some of these companies — Ithaca and Enquest in particular — have contributed to their own downfall, thanks to high levels of debt and operational delays.
However, such abject sell-offs can sometimes leave bargains on the table for brave investors — are Ithaca, Enquest or Ophir a buy at today’s prices?
Ithaca Energy
Ithaca’s shares fell by 25% on Wednesday, after the firm announced yet another delay to its Greater Stella Area project in the North Sea, which will now cost $10m more than expected, and not start producing oil until the first quarter of 2016, nine months later than expected.
Ithaca’s immediate financial situation isn’t too bad, as half of its oil production is hedged at $102 per barrel until mid-2016. According to the firm, this has reduced its breakeven price for Brent production to just $20 per barrel.
My only concern is that Ithaca’s debt, which is expected to peak at $850m this year, could become problematic if the firm suffers any further delays or cost overruns.
Ophir Energy
Best known as a large and successful explorer with lots of unexploited African gas assets, Ophir has decided to branch out into production, and is just about to complete a share-only deal to acquire Salamander Energy.
In my view, Salamander’s mix of Asian oil and gas assets should work well for Ophir, generating valuable cash flow to keep the company going while it starts to develop its large gas fields off the coast of Africa.
However, I suspect patience will be required for anyone seeking big returns: one recent announcement indicated that first gas from the Fortuna Field, offshore Equatorial Guinea, isn’t expected until 2019.
Enquest
Like Ithaca, Enquest has major new North Sea production that’s expected to come on-stream in the next couple of years. As with Ithaca, however, the question is whether Enquest can make it that far without running into problems servicing and repaying its debt.
Net debt is currently around $1bn, and finance and interest costs rose from $19m during the first half of 2013 to $46m during the first half of 2014. If oil prices take longer than expected to recover, things could get very tight.
