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Is Now The Time To Buy Enquest Plc?

Today I am looking at whether now is the time to plough into oil explorer Enquest (LSE: ENQ).

Brent bounce pushes shares higher

Shares in troubled fossil fuel play Enquest have steadied since the mid-point of January, giving shareholders cause for relief after the 75% price collapse printed during the preceding six-month period. Indeed, the stock has bounced from the record lows of 22.25p per share seen at the start of the year, prompting many to speculate that the worst could now be behind the London-based business.

Enquest’s uplift and the slight recovery in the oil price in recent months is no coincidence, with signs of corked US output boosting market optimism over the black commodity’s supply/demand balance. Brent was recently trading around $54.50 per barrel, recovering from the five-and-a-half-year lows around $46 seen earlier this year.

But market balance remains murky

Still, investors should be aware that the oil price bounce remains on shaky ground, and with it Enquest’s recent share resurgence.

The International Energy Agency (IEA) cautioned last week that “behind the facade of stability, the rebalancing triggered by the price collapse has yet to run its course,” adding that “it might be overly optimistic to expect it to proceed smoothly.”

Although the number of North American shale rigs in operation continues to plummet, the IEA commented that “US supply so far shows precious little sign of slowing down… Quite to the contrary, it continues to defy expectations.” It added that inventories in the world’s biggest oil consumer are bursting at the seams.

Earnings expected to rattle lower

In the face of these pressures Enquest’s earnings profile is, naturally, taking a bit of a whack. At present City analysts expect the firm to follow a 25% bottom line decline in 2013 with an additional 45% drop in 2014, results for which are due this coming Thursday. And things are not expected to improve any time soon, and a colossal 91% earnings slump is pencilled in for 2015.

Enquest soothed investor fears over an imminent collapse, like that seen over at Afren, when it received approval by its creditors to ease covenants on its debt until the middle of 2017 in January. And last month the firm received $23m after it decided to exit a farm-in deal at the Didon field in Tunisia.

But with oil prices likely to remain in the mire for some time to come, and the firm facing heavy cost pressures at its Amla/Galia project in the North Sea — due for start-up next year — I believe that Enquest is an extremely dicey stock pick.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Afren. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.