When we pick around the carnage of the oil price slump, there are surely some that are not going to survive. But on the other hand, those that do are likely to come out of a recovery strongly and reward those prepared to take the risks now. I’ve been looking at some small (but not tiny) oilies whose share prices have crashed in the hope of finding some bargains:
Running out of cash?
Shares in IGas (LSE: IGAS) have suffered the biggest 12-month fall of the three I’m looking at today, by 80% to 22.75p at the time of writing. When the oil price first crashed to around 60p a barrel, IGas was one of the ones that were clearly going to suffer — it hasn’t achieved steady profits yet, and it was well-enough funded with oil closer to $100, but at today’s prices of around $50 there are definite doubts.
The year just ended resulted in an £18.5m pre-tax loss. But critically, net debt had reached £86.4m. The company is forecast to report a £3m profit in the coming year, and CEO Stephen Bowler reckons its cost savings leave it in a good enough position. But even the £8.5m pre-tax profit pencilled in for March 2017 must be seen in the light of those debts.
Will IGas stay above water until oil picks up? I don’t think we’re going to see another Afren here, but I can see the debt situation getting significantly worse before it gets better.
Rolling in it!
Amerisur (LSE: AMER) has suffered a price fall too, but not as severe. Its shares are down only 48% over the past year to 31.5p — and they’ve actually regained 54% since the year’s low point in April. Amerisur, which focuses its oil and gas exploration and production in South America, with assets in Colombia and Paraguay, has been profitable for a number of years and is not reliant on debt. In fact, at its last year end it was in a comfortable net cash position.
The company is sitting on estimated assets of around 24m barrels of oil equivalent, and it has a relatively low cost of production per barrel. So it can sit out $50 oil while remaining in profit, poised for earnings growth when prices recover.
I don’t see a lot to dislike about Amerisur.
And a punt
My third pick today is a bit of a punt. The company is Hurricane Energy (LSE: HUR), and its shares are down 65% over 12 months to 13.5p — and it’s a punt because its still in the cash-burn exploration phase and there are no profits on the cards for this year or next.
Hurricane is exploring in the North Sea in UK waters, which adds risk due to per-barrel costs of production being higher than in other parts of the world. But the firm’s flotation in February 2014 raised £17m in fresh capital, and at the end of the year there was net cash on the books of £15.9m. With an annual operating cash outflow of £4.7m, and with CEO Dr Robert Trice saying that “The drilling and testing of the Lancaster appraisal well […] was a great success“, I can see Hurricane’s assets being plenty to keep investors interested.
Would I buy any of these? If I had to choose, I’d go for the relative safety of Amerisur, where I see significant upside in the coming years.
