Which Will See Profit First, Falkland Oil and Gas Limited, Rockhopper Exploration Plc Or Xcite Energy Limited?

Will Falkland Oil and Gas Limited (LON: FOGL), Rockhopper Exploration Plc (LON: RKH) and Xcite Energy Limited (LON: XEL) produce profits before the cash runs out?

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Investing in smaller oil exploration companies is always going to be a race against time — they have to find the stuff and turn a profit before their investors’ cash runs out. The pressure is so much greater today, when oil prices are low and OPEC has forecast sub-$100 per barrel for the next decade, but that also means there can be bargains in depressed share prices.

Falkland Oil & Gas

According to its full-year results, Falkland Oil & Gas (LSE: FOGL) had $95.5m at the end of December and is fully funded for its 2015 drilling plan, which will build on the seismic data it has already acquired. The firm also announced its Zebedee oil and gas find in April, telling us that it, along with the firm’s Hector find, are better than expected.

With CEO Tim Bushell saying that the firm “looks forward to continuing to work with its partners to progress development of the substantial oil and gas resources” within the PL004b licence area in which it owns a 40% stake, profits really don’t look too far away.

Rockhopper

Rockhopper Exploration (LSE: RKH) shares the same PL004b licence and the Zebedee field, with a 24% stake, and so its future depends largely on the same resources as Falkland Oil & Gas — and the two firms also have stakes in other common areas around the Falklands basin, partnering with Premier Oil in some cases.

At the end of 2014, Rockhopper recorded $200m in cash, with chairman Pierre Jungels saying its “balance sheet remains strong and the Company is well placed to take advantage of potential growth opportunities which may present themselves as a result of the current market environment“. Does that mean it’s on the lookout for takeover targets? Whichever way it goes, Rockhopper’s future also looks healthy.

Xcite Energy

The focus for Xcite Energy (LSE: XEL) is significantly different, with the firm’s exploration centered on its Bentley field in the North Sea. North Sea operations can be expensive, though Xcite does have proven oil with its Bentley reserve estimates upped from 250 MMstb to 257 MMstb in February 2014. The company is in partnerships with a number of bigger firms to develop its resources, but it’s facing a tighter cash squeeze than its Falklands rivals.

At the end of 2014 Xcite had only £32.5m in cash, having secured new debt financing during the year, and it is in “ongoing funding discussions with potential co-venturer partners” according to CEO Rupert Cole.

Which is best?

Xcite is more out of favour with investors right now, with its shares down 56% over 12 months to 39p. Meanwhile, Rockhopper shares have slipped 35% over the same period, but the Zebedee success has halted the fall for now. And at Falkland Oil & Gas, the shares are flat at 27.5p, presumably reflecting the firm’s bigger stake in that newly found oil. The punters seem to be expecting good things sooner at Falkland, and I’m with them.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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