Should You Snap Up LGO Energy PLC, Xcite Energy Limited & Ithaca Energy Inc. Right Now?

LGO Energy (LSE: LGO), Xcite Energy (LSE: XEL) and Ithaca Energy (LSE: IAE) are really troubled: but do they offer a once-in-a-lifetime opportunity? Here’s all you need to know about these oil and gas companies. 

Tough Times At Ithaca

You don’t have to be a financial guru to understand how bad the situation is with this oil and gas producer. Its balance sheet carries a huge amount of debt, while its shares have plunged 62% in the last month of trading. There’s more to it: its benchmark project in the North Sea is going to cost more than budgeted for, as problems recently emerged with production. Lower oil prices are killing the investment case. 

Its enterprise value is more than five times the value of its equity, which means that Ithaca’s net debt position is simply unsustainable, and that is clear when you try to figure out how much cash the company may burn with Brent below $50 per barrel. It’s no surprise that capital expenditure was recently cut by 60%. That may not be enough, though. 2015 net capital expenditure is projected at about £100m, the majority of which will fund its Greater Stella Area project, which may – or may not — produce oil by the end of 2015. 

Xcite Energy & LGO Energy: High Risk, But…

Fossil fuel explorer Xcite Energy doesn’t generate revenues and cash flows, and doesn’t have too much cash on the balance sheet, either. Most of its assets are intangibles, which are worth very little in this market.

It has some debts, though, and significant capital expenditure needs, so strategic partners will be vital to its success. Its Bentley oil field is one the largest undeveloped fields in the North Sea: the big question now is how Xcite will monetise the asset. In my view, the most obvious outcome remains a takeover — at a small or no premium. Development risk is real and additional project delays should not be ruled out. 

Statoil is the most likely buyer for Xcite, whose shares were up 10% on Wednesday in early trade based on bullish expectations for the Budget — yet they are down 60% in the last 12 months and more than 10% year to date. 

Elsewhere, LGO Energy has lost more than 40% of value in 2015: it takes a huge leap of faith to invest in LGO, in my view, but this could be a high-risk/high-reward investment!

In fact, its Goudron field in Trinidad is outperforming, based on expectations. The explorer announced on Tuesday that its subsidiary Goudron E&P Ltd had drawn down about $12m out of a $25m pre-paid debt facility. 

This round of funding backs the development drilling programme at the Goudron field, and shows that LGO has the full support of its lenders, which is very important these days. 

We are now entering one of the most exciting growth phases of the Company and are delighted that this finance facility is now in place and that our development program at Goudron will be carried out through a long term funding arrangement with a first class lending institution,” chief executive Neil Ritson said. As our business grows in Trinidad we look forward to the relationship with BNP Paribas growing to match our needs.”

Of course, there's a chance that LGO, Xcite and Ithaca will continue to plummet, but if you are invested -- or if you are considering an investment -- in any of these three oil companies, any possible oil losses in your portfolio could be offset by terrific gains from several shares that could reward you with a 50% pre-tax gain annually.

Several top growth candidates are included in our top ten "multi baggers", and many of them have already recorded a +30% performance year to date; they could easily replace small oil producers in your portfolio, for a much lower level of risk!

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Alessandro Pasetti 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.