It’s only a couple of days since the price of a barrel of Brent Crude dropped below $55, and people were already wondering if it would crash through the $50 level.
Well, that question has already been answered as the black stuff dipped to $49.92 in early trading today, although as I write it’s a smidgen above $50 again.
While the big companies like BP and Royal Dutch Shell can ride out such crises, prices like this are seriously hurting some of our smaller firms:
Shares in Premier Oil (LSE: PMO) crashed to a 52-week low of 146p on Tuesday before recovering a little to end the day at 150.3p, and today they’re heading back down again at 149p as I write. From a 52-week high of 358.6p, Premier Oil is now down 58% with most of that slide coming since the end of September 2014.
At least Premier is profitable and is paying dividends, and there’s a two-year-out P/E of only around 7 forecast for the end of 2016. Is Premier a good oil bet now for the oil price recovery that must eventually come? (It must come, mustn’t it?)
There’s no profit expected at Hardy Oil & Gas (LSE: HDY) before 2017 at the earliest, and that’s made its share price quite a bit more volatile. But its fall from peak to trough is similar to Premier’s — from a 52-week high of 123.75p the shares have slumped 52% to a low of 60p.
Hardy, whose exploration is focused in India, told us in a six-monthly update in November that it was “in a strong working capital position” to fund its plans with $22.9m in cash and equivalents, but the plunge in oil prices must surely require re-evaluation of the viability of some of its explorations.
EnQuest (LSE: ENQ) is the biggest faller of these three, with a jarring crunch of 78% from its 52-week high of 148.4p to a closing low of just 31.75p on Tuesday — at the time of writing, the shares are back up a little to 33p. Over five years, the EnQuest price is down 70%.
EnQuest is actually profitable, although forecast earnings per share are very erratic (as they often are due to the nature of explorers’ income), with a slump to 2.4p forecast for 2015 from an expected 6.5p for the year just ended.
I reckon investing in oil exploration is only for experts, and only those who have the nerves to handle tough periods like this — but if I was at all tempted, I’d be looking for sustainably profitable companies with plenty of cash on their books.