Are Xcite Energy Limited, Rockhopper Exploration plc and Gulf Keystone Petroleum Limited heading to zero?

Is there a chance Rockhopper Exploration plc (LON: RKH), Xcite Energy limited (LON: XEL) and Gulf Keystone Petroleum Limited (LON: GKP) could go out of business?

| 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.

As oil prices continue to languish below $100 a barrel, the number of casualties in the oil sector is growing.

Small-cap oil companies, which once had bright prospects thanks to their impressive reserve bases, are now unable to find the investment or financing required to develop their reserves.

What’s more, as banks attempt to shield their exposure to the sector, many small-cap explorers are losing the support of their banks, which have traditionally provided financing when no investor could be found.

On the edge

Xcite Energy (LSE: XEL) is just one example of this trend. The company has some exciting prospects in the North Sea, but as oil prices have collapsed it looks as if potential partners for the company’s projects have backed away from any potential deal, leaving Xcite in a precarious position.

The company warned at the beginning of this week that it doesn’t believe it can repay bonds falling due at the end of June. With a cash balance of only $14.1m at the end of March, and bonds worth $130m falling due next month, Xcite’s ability to continue as a going concern hangs in the balance unless a white knight appears to save the company.

Management is already in discussions with bondholders and with a market capitalisation of only £36m, shareholders face significant dilution if the company taps the market for additional funds.

Steady progress

As Xcite struggles, Rockhopper Exploration (LSE: RKH) continues to chug along.

At the end of 2015, Rockhopper had cash resources of $110m, enough to keep the lights on for several years. Also, the group is producing oil and gas and has been on an acquisition spree to boost its presence around the world.

When oil prices return to $100 a barrel, the market should recognise these accomplishments and place a premium on Rockhopper’s shares. And the company has enough cash to keep the lights on until such a recovery takes place.

Running out of time

Unfortunately, Gulf Keystone Petroleum (LSE: GKP) is in the same position as Xcite. The company borrowed too much money when times were good, and is now struggling to meet its obligations. Management is already in discussions with bondholders regarding a restructuring of debt, and the company will need another cash infusion to maintain production this year.

All in all, Gulf Keystone needs several hundred million dollars just to keep the lights on over the next few years — that’s even if oil prices recover. The group’s towering debt pile and hefty capital spending bill will consume nearly all cash generated from operations if those prices do recover.

Unless Gulf Keystone pushes bondholders to accept a haircut or restructuring, this is likely to be the case for the foreseeable future. It’s highly probable that shareholders will be asked to foot the bill for the company’s mistakes and pay off bondholders.

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.

Rupert Hargreaves 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.

More on Investing Articles

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 »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Recommended by Warren Buffett, this top hedge fund’s betting on Rolls-Royce shares

When Warren Buffett ended his previous investment partnership, he recommended Bill Ruane’s Sequoia Fund. Today, its largest investment is in…

Read more »