Are Ithaca Energy Inc., Rockhopper Exploration Plc & Tullow Oil plc Today’s Biggest Oil Bargains?

Roland Head takes a closer look at Ithaca Energy Inc. (LON:IAE), Rockhopper Exploration Plc (LON:RKH) and Tullow Oil plc (LON:TLW).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Oil prices have risen this morning in the wake of the Paris attacks. Markets are pricing in an increased change of supply disruption.

Shares in both Rockhopper Exploration (LSE: RKH) and Tullow Oil (LSE: TLW) have enjoyed a 5% bounce, although strangely Ithaca Energy (LSE: IAE) has not, despite releasing a solid set of Q3 results.

These three stocks have fallen by between 47% and 60% over the last year. If the oil market does start to stabilise in 2016, as many analysts expect it to, then now could be a good time to buy.

Ithaca Energy

Shares in North Sea firm Ithaca are now nearly 60% above their 52-week low of 26p, but I think this company remains one of the better choices for an oil recovery play.

Ithaca generated adjusted earnings of $98m and cash flow from on-going operations of $217m during the first nine months of the year. This compares well with last year, when cash flow for the first nine months of the year was $128m.

Ithaca is benefiting from a strong hedging strategy. The firm’s operating costs per barrel of oil equivalent (boe) have also fallen sharply to $33 this year, down by 40% from last year. Ithaca expects costs to fall to $25/boe when production starts from its Stella field in Q2 2016.

It’s worth remembering that Ithaca’s recent $66m placing was carried out at 53p per share — 29% above the current share price. This means that private investors can currently buy into Ithaca for much less than the placing price.

Stella is likely to be the key to Ithaca’s success, in my view. If everything goes to plan from now on and there are no further cost overruns or delays, Ithaca could be a smart buy.

Rockhopper Exploration

Exploration firms operating in the Falklands have had a poor run of luck recently. This makes Rockhopper’s decision to diversify by buying Mediterranean Oil & Gas last year look wise.

Rockhopper said today that gas production has started at the Civita field, in the Abruzzo region of Italy. Combined with production from the firm’s offshore Guendalina gas field, Rockhopper now has gas production of around 700 boe per day, which is expected to provide revenue of around $9m in 2016.

Although this won’t make anyone rich, it should cover many of the firm’s overheads and help preserve Rockhopper’s $160m cash balance.

As the only Falkland explorer with a potentially commercial oil discovery, Rockhopper could be worth a closer look, in my opinion.

Tullow Oil

Tullow scored some brownie points with investors recently when the firm’s lenders recently agreed to leave Tullow’s lending facility, which is based on the value of its reserves, unchanged.

Many other companies have seen their reserve-based lending facilities reduced in the light of lower oil prices. Tullow’s success in avoiding this fate suggests the company’s lenders are confident that the firm’s TEN project will be successful and generate significant enough new cash flow to repay its debt.

I agree with this view. At less than 200p per share, I wonder if Tullow is a buy. My only concern is that repaying Tullow’s $4.2bn net debt will place a lot of pressure on the firm’s profits over the next few years, and may limit shareholder returns.

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.

Roland Head 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.

More on Investing Articles

Investing Articles

Up 51% in 2024, this FTSE 250 stock is flying!

This writer takes a look at one high-flying FTSE 250 share that still looks good value despite surging to an…

Read more »

Investing For Beginners

Here’s how I’m trying to prevent a stock market crash from ruining my portfolio

Jon Smith explains which shares he's avoiding and what he's thinking of buying to try and protect his portfolio from…

Read more »

Bearded man writing on notepad in front of computer
US Stock

Call me crazy, but here’s why I’m eyeing up the CrowdStrike share price

Jon Smith notes the carnage caused by Friday's global outage, but flags up why he's thinks the CrowdStrike share price…

Read more »

Investing Articles

What do Hargreaves Lansdown results mean for the share price?

The Hargreaves Lansdown share price has surged in recent months on takeover expectations, but what will the recent results mean…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Newly minted S&P 500 stock CrowdStrike just crashed! Here’s why

Shares of S&P 500 firm CrowdStrike collapse as the company lies at the centre of a global IT outage. What…

Read more »

artificial intelligence investing algorithms
Investing Articles

Is Nvidia heading for the mother of all tech stock crashes?

Nvidia stock has soared, and the company briefly became the most valuable on the planet. But not everyone’s an AI…

Read more »

Dividend Shares

The BP share price is down 15% in 3 months. Time to buy?

In the space of just a few months, the BP share price has fallen by a double-digit percentage. Is this…

Read more »

Investing Articles

A 5.4% dividend bargain I’ll buy over Lloyds shares

Harvey Jones loves his Lloyds shares but now he's found a high-yielding FTSE 250 stock that may offer even more…

Read more »