The oil market is in turmoil. Indeed, both the major oil benchmarks, Brent and WTI, are currently trading at four-year lows as supply outpaces demand. Unfortunately, the whole oil industry is now under pressure as with oil trading below the key $100 per barrel level, many large deep-water projects are no longer commercially viable.
Small-cap oil explorers Rockhopper Exploration (LSE: RKH), Falkland Oil and Gas (LSE: FOGL) and Hurricane Energy (LSE: HUR) have not escaped the carnage. In particular, the oil minnows have seen their share prices fall 15%, 7% and 30% respectively over the past 30 days.
The question is, do these declines present an opportunity to buy, or should you stay away?
There’s no denying that Rockhopper Exploration has bright prospects. The company owns a share of the huge Sea Lion oil prospect in the Falkland Islands. The prospect is being developed by Rockhopper’s partner, Premier Oil. Rockhopper’s total volume of resource within the Falkland’s region is estimated to be 114 million barrels of oil and 277 billion cubic feet of natural gas.
In addition to this huge prospect, Rockhopper also recently acquired small-cap peer Mediterranean Oil & Gas for a relatively small sum, which expanded the company’s asset base, diversifying away from the Falkland Islands.
What’s more, unlike many of the company’s sector peers, Rockhopper has a hefty cash balance of $247m, or £151m as reported at the end of March this year. With a market capitalisation of only £228m, it would appear as if the market is significantly undervaluing Rockhopper’s reserves. On this basis, the company looks to be an attractive investment at current levels.
Like Rockhopper, Falkland Oil and Gas is still in the exploration stage of its life, working with peer Noble Energy to explore for oil within the Falkland Islands. So far, progress has been mixed but Noble plans to recommence drilling again next year.
The company had previously declared a separate project in the Falkland Islands, known as the Scotia well, to be non-commercial and this threw the exploration programme into doubt. However, new analysis of the region has given Noble and Falkland Oil & Gas hope that further projects will yield success. On this basis, Falkland Oil & Gas remains a speculative play.
Unlike Rockhopper and Falkland, Hurricane Energy is making solid progress developing its assets located within the UK Continental Shelf. Indeed, only last month the company reported that oil production from its Lancaster field could be “significantly ahead of initial expectations”.
Specifically, management reported that production from the field could exceed 20,000 barrels of oil per day, while the appraisal test well only flowed at rates of up to 9,800 bbl/d.
With appraisal wells drilled and test production actually taking place, Hurricane’s future is, to a certain extent, de-risked as the company has most of the building blocks in place to begin producing and selling oil on a commercial basis.
That being said, full commercial production is still some way off but the company’s 470m barrels of contingent resources is an attractive asset, especially considering Hurricane’s current market capitalisation of only £172m.
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.