Is Now The Perfect Time To Buy Xcite Energy Limited?

For investors in Xcite Energy (LSE: XEL), 2014 was nothing short of a disaster. That’s because the company’s share price fell by a whopping 64% last year and, since the turn of the year, it’s down by a further 4%.

A Challenging Year

Of course, a key reason for the fall in the company’s share price has been the collapse in the oil price. Clearly, this has impacted almost oil producers and explorers, with their top and bottom lines being hit hard and investor sentiment also sent into reverse. Xcite Energy is no different, with the company reporting a net loss of £2.7 million in the third quarter of the year. This was hugely disappointing and compared to a profit of £0.9 million in the third quarter of the previous year, with unrealised foreign exchange losses from a strengthening dollar contributing to a challenging period.

However, the previous quarter had also been disappointing, with Xcite Energy reporting a fall in profit to just £51,000 from £10 million a year earlier. During that quarter, the company had successfully raised $140 million through the placing of senior secured bonds and the issuance of new shares, which shows that although the company’s share price has fallen heavily, it remains a business that investors are still willing to back.

Future Potential

Despite the disappointment of recent quarters, Xcite Energy is pressing ahead with its plans to develop the Bentley field in the North Sea. To this end, it recently signed a memorandum of understanding to purchase a drilling rig from China Oilfield Services and it will be used to build the new jack-up drilling rig for the field. This provides evidence of the progress the company is making and, although the aforementioned losses are a major source of disappointment, Xcite Energy’s cash flow from operations rose to £5.1 million in the third quarter (up from just £0.5 million last year). This should provide investors in the company with relative confidence that it has the resources to continue in its aim of becoming a heavy-oil producer in the North Sea.

Looking Ahead

Clearly, further oil price weakness will hurt Xcite Energy’s share price in the short run, so investors in the company should expect further lumps and bumps in the short to medium term. And, looking ahead, Xcite Energy is not forecast to deliver a profit in either of the next two years, which could also contribute to further pressure on its share price.

However, the company continues to have a relatively bright future. For example, it is continuing to make progress in regard to the Bentley field and at least some of the losses in 2014 have been due to unfavourable currency movements, which may not be repeated in future. Furthermore, it has signed collaboration agreements with the likes of Statoil regarding a potential future shared gas import pipeline and continues to have relatively strong cash flow, too.

As a result, it could prove to be a sound long-term buy, although its share price could offer better value in the meantime. Therefore, it’s one to watch, rather than buy, at the moment.

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Peter Stephens 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.