Share prices of small oil explorers tend to turn on the next drilling result, and we’ve seen two falls today from two favourites after they released their latest exploration news.
At Faroe Petroleum (LSE: FPM) we saw a 3% price dip to 79p, after the company released the results of its Bister exploration well. Drilling at the site in the Norwegian Sea commenced on 27 April, and has reached a total vertical depth of 2,990 metres below sea level with one side track reaching 2,770 metres. Unfortunately, no hydrocarbons were detected, and the firm will now have to re-asses its seismic results before moving on to its next exploration targets.
A challenge
The firm still does have confirmed discoveries elsewhere and plans to follow those up in the coming month, but today’s news has dashed hopes that a 2015 upturn in the shares was set to continue. After a 49% gain to 90p in early April, the price has now given up 12%, and with a 40% fall over the past 12 months and no profit expected this year or next, Faroe is in for a challenging drilling season.
Meanwhile, over in the Mediterranean, Sound Oil (LSE: SOU) seems to be pleasing the punters — its share price is up 190% over 12 months to 22.8p, with the bulk of that gain driven by successful developments this year at the firm’s Nervesa gas discovery. In fact, Sound Oil is one of those rare explorers that has profits forecast for this year — only just, but 2016 is expected to bring in the start of some significant earnings.
However, after the firm released news of its second Nervesa appraisal well, the shares suffered a small dip and fell 4.9% to 22.8p. After reaching a depth of 2,054 metres, the drilling has apparently detected “the presence of various gas bearing levels“, but we won’t know more than that until further tests are made.
New shares
In other news, the company confirmed the details of its planned new equity issue, telling us that the new shares will be priced at 19p and eligible shareholders will be able to buy one for every 23 they already own. While that might have been partly behind the share price dip, the new issue had been know about since 28 April and doesn’t really contain any surprises.
Which of these should you buy? Well, if you like the bigger risk then Faroe Petroleum could turn out to be a bargain while the price is depressed. At full-year results time the firm reported closing reserves of 30.6 mmboe with contingent resources of 109 mmboe, and had net cash of £69.6m — and if earnings aren’t yet positive, forecasts have things moving in the right direction.
A bit pricey?
By comparison, Sound Oil looks pretty safe now with profits just about assured, but after the soaring price this year we’re looking at a forecast P/E of 46 for 2016.
