If you want to see the ups and downs faced by small oil explorers, look no further than Solo Oil (LSE: SOLO). Part of the Horse Hill Development consortium, Solo has a 6.5% interest in the so-called Gatwick Gusher in the Weald Basin, but it has other interests — including the Kiliwani North gas field in Tanzania, about which we heard good tidings on Wednesday.
First gas from Kiliwani North, in which Solo has a 6.175% interest, is expected to ramp up to production of around 4,000 to 5,000 barrels of oil equivalent per day over the next 90 to 100 days. And that was enough to push the share price up 24% to 0.36p on the day.
Then today we hear of a 320m share issue, to raise £800,000 for Kiliwani development and take the firm’s interest to 8.425%, but which will dilute existing shareholders’ interests. The shares promptly gave up Wednesday’s gains and are now back at 0.28p. I’m sure the timing, straight after Wednesday’s good news, is purely coincidental, but it does illustrate why I wouldn’t touch a cash-burn investment like Solo. By the time it’s profitable, we’ve no idea how badly we’d have been diluted out of it by fresh cash-raising.
Running out of cash
The reason I’d dump Gulf Keystone Petroleum (LSE: GKP) is also simple — it’s at great risk of going bust. Although the firm’s Shaikan development in the Kurdistan region of Iraq is a world-class asset, Gulf Keystone is rapidly running out of money because it’s not been getting the cash from the regional government for all the oil it’s exported.
Sure, there’s a payment schedule in place now and Gulf is seeing some cash trickle in, but it seems like too little, too late to me. The big problem is that Gulf has debt repayments to meet of $250m in April 2017 and $325m in October 2017. And the company has come about as close as it can to admitting that it can’t continue for much longer without a serious injection of cash. It said it “continues to actively review options to secure new funding and restructure the Company’s balance sheet, to ensure it is able to continue as a going concern“.
The shares are down 83% in 12 months, to 6.4p, and down 98% since their 2012 peak, but I’m hearing echoes of Afren here, and I reckon there could easily be a further 100% to go.
Transformational?
Shares in video technologist Blinkx (LSE; BLNX) soared to around 230p in late 2014, but crashed back down when it became clear that the company had missed the massive switch to mobile computing and had to re-engineer its products to match. Today the shares trade at just 18.7p.
The latest dip came in response to Tuesday’s trading update, in which its chief executive S Brian Mukherjee described 2015-16 as “a transformational year for the industry and the company“. The trouble is, as my Foolish colleague G A Chester astutely pointed out, a year ago, the firm described 2014-15 as “a transformational year for both the online advertising sector and blinkx“.
Meanwhile, revenues are transforming into smaller sums, with $165m-$170m expected for this year, down from $215m last, and there’s an EBITDA loss of $10m-$11m on the cards. And the market is transforming into a more competitive one, with advertising prices falling and margins being squeezed. I can’t help feeling Blinkx has missed the boat.
