Is Hurricane Energy plc a more tempting falling knife than SOCO International plc?

Harvey Jones says oil explorers Hurricane Energy plc (LON: HUR) and Soco International plc (LON: SIA) are down but far from out.

| 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.

The plunging oil price has been toughest on smaller oil explorers, with falling knives everywhere you look in this sector. With Brent crude back at $54, could now be the time to grab one of them? Here are a couple to consider.

Soco, so good

Vietnam-focused Soco International (LSE: SIA) reported its interims for the half-year to 30 June this morning after a torrid three years where its share price has fallen 70%. Its stock is flat following publication, yet there was some positive news in these results.

In Vietnam, Soco averaged 29,600 barrels of oil equivalent per day gross and 8,606 barrels net to its working interest, which it described as “stable” even though both are down from 37,180 and 10,862 last year. Good news for loyal shareholders came in the form a $21m final dividend payout at 5p per share for 2016, up from $9.4m year-on-year. Forecast yield is 4.3%.

Debt-free

Management also hailed ongoing balance sheet strength, with a half-year-end cash and liquid investments balance of $132m, up from $100.3m on 31 December, and no debt. Soco was boosted by collecting $42.7m from the 2005 sale of Mongolia assets in March. It reported impressively low cash operating costs of just under $13 a barrel, up from $10 last year, while achieving an average realised crude oil price of $53.90 a barrel, a $2.13 premium to Brent and better than last year’s $40.89. The company has positioned itself for cheap oil.

Cash capital expenditure fell from $27.2m to $15.5m, revenues rose slightly from $72.7m to $74m, and net operating cash flow rose from $16.2m to $27.1m, Also, net losses halved from $12.2m to $6.7m.

Positive Story

President and CEO Ed Story praised the company’s tenacity and financial strength, which have helped it endure “low oil prices and harsh macro-economics, whilst delivering sustained cash returns to shareholders”. 2017 capital expenditure of $35m in Vietnam and $15m in Africa should be fully funded from existing cash resources.

Analysts are pencilling in earnings per share growth of 367% in 2018, so maybe Soco can thrive again, although in this volatile sector I take such forecasts with a pinch of salt. If you are brave and bullish on oil, Soco could be one to watch.

Hurricane force

UK-focused oil and gas explorer Hurricane Energy (LSE: HUR) has also had a dismal time lately, its share price hammered in June after announcing it needed to raise another $520m to develop its Greater Lancaster Area project in the North Sea, via $300m of equity and $220m in convertible bonds, diluting existing shareholdings and calming investors who have got over-excited by media talk of a billion barrels lying in the North Sea.

Hurricane has described Lancaster as “the largest undeveloped discovery on the UK Continental Shelf” producing a potential 17,000 barrels per day, but it does not expect to drill any oil until the first half of 2019, and this kind of deadline has a tendency to be set back. Oil industry retrenchment has cut the cost of drilling and exploration, helping Hurricane, although that process is largely overland.

The oil price recovery may boost sentiment but I remain cautious on this front. Yes, it has picked up lately, but could quickly retreat again. It would take a brave investor to catch either of these falling knives, but with Soco pumping oil and returning cash to shareholders today, I would favour it over Hurricane Energy’s full force uncertainty.

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.

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Closeup of "interest rates" text in a newspaper
Investing Articles

Interest rates fall again! Here are 3 FTSE dividend growth shares to consider buying

As interest on cash savings becomes increasingly less attractive, Paul Summers has been looking at dividend growth shares for passive…

Read more »

Investing Articles

Up 10% today, I think this FTSE 250 growth share could continue to surge!

Babcock International's flying after upgrading its full-year forecasts. I think the FTSE 250 defence share might just be getting started.

Read more »

Investing Articles

The AstraZeneca share price jumps 5% on today’s strong results – but is it too expensive?

Harvey Jones hails the brilliant long-term performance of the AstraZeneca share price, but wonders whether the FTSE 100's biggest company…

Read more »

Investing Articles

Is this my chance to buy Alphabet shares?

A big step up in AI spending at Google has investors nervous, but has it created an opportunity to buy…

Read more »

Senior woman potting plant in garden at home
Investing Articles

£10k in savings? Here’s how an investor could aim for a monthly second income of £1,200

Mark David Hartley considers how investors could build towards an early retirement plan with a second income from a portfolio…

Read more »

Investing Articles

2 cheap shares to consider buying in a £20k ISA for income of £1,000 a year

Harvey Jones loves buying cheap shares and says these two FTSE 100 stocks look tempting today, especially as they offer…

Read more »

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

Is it worth me buying Lloyds shares for 61p after a 49% rise?

Lloyds shares have risen significantly from their one-year traded low seen last February, which could mean no value is left…

Read more »

Investing Articles

I think this FTSE 100 fashion stock could skyrocket in 2025

JD Sports has had a disastrous few months of losses but 2025 looks primed to be the year for this…

Read more »