Why Are Ophir Energy Plc, Circle Oil Plc And Tullow Oil plc In A Slump This Week?

Do Ophir Energy Plc (LON: OPHR), Circle Oil Plc (LON: COP) and Tullow Oil plc (LON: TLW) really deserve their rock-bottom prices?

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The oil and gas business is in a slump for sure, but over the past week or so the decline has been accelerating for some in the sector, through no apparent fault of their own.

Look at Ophir Energy, (LSE: OPHR), for example. A broker downgrade at the start of the week possibly triggered the latest fall, with the share price now having lost 23% over the past five trading days, to 88p as I write — and over 12 months, Ophir stock has crashed by 58%.

The latest dip comes after first-half results released on 23 August, which looked reasonable. Ophir is not expected to deliver any profit this year, and in fact recorded a pre-tax loss of $123m in the half, but it’s expected to just exceed break-even in 2016. So, the question is whether the firm has the cash needed to get that far.

Looking safe

And the answer seems to be that it does, easily, with net cash of $392m on its books and CEO Nick Cooper saying that “Ophir continues to differentiate itself through the robustness of its financial position“. And if that’s not enough, the company was able to complete a $100m buyback of its own shares in the half.

Turning to the smaller oilies, we see the £35m Circle Oil (LSE: COP) in a similar position, with its share price heading further down recently, to bring in a 65% fall over the past 12 months to just 6.2p. Forecasts suggest that Circle will be close to break-even in 2016, so again we’re looking at a similar liquidity question.

At year-end in December (not reported until June), Circle told us of total revenues of $85m, down 9% due to falling oil prices, though the firm had available cash of $34.5m — although net debt was up to $59.2m by the end of May 2015. But with a four-year reserve-based debt facility having been agreed only in March 2014, which could provide up to $100m, and with Circle enjoying relatively low production costs in Egypt, I see no imminent danger.

I’ll finish with a look at Tullow Oil (LSE: TLW), which has seen its share price fall 10% in the past five days, and by a whopping 71% in 12 months — and an eye-watering 86% since February 2012! Tullow has had a couple of painful years, with earnings per share falling by three quarters in 2013, followed by a bone-jarring $2bn pre-tax loss in 2014.

Set for a nice recovery?

But the firm’s restructuring and cost-saving was bearing fruit by the mid-way point this year, and though Tullow was facing net debt of $3.6bn, it still had a cash and debt headroom position of $2.3bn. And in an operational update last week, CEO Aidan Heavey told us that Tullow “continues to make good progress […] with continued emphasis on managing costs, capital expenditure and the balance sheet“.

There’s a small profit on the cards for Tullow this year, but a significant rise forecast for 2016 would being the P/E down to about 16 — and a continued recovery could make Tullow a good investment for the stout-hearted.

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 considered so you should consider taking independent financial advice.

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Tullow Oil. 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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