A decent technical outcome

The company said it perforated well CSo-85across the Springhill Formation and gas flowed gas to surface “without intervention,” which I take as a positive sign that the well has decent natural pressure. After that, the well flowed through the rig de-gassing system “at an estimated rate of 2mmscf/d through a 20/64″ choke with a tubing head pressure of 1,100 psi.” The next stage is an extended flow and build-up test and the firm expects the full testing unit on site in the next 10 to 14 days.

There could be more good news on the way because the Quintana-01rig will “shortly” move to another well — CSo-80— to “commence workover operations this weekend.” The company promises to provide appropriate market updates “as the workover programme advances.”  These are exciting times for investors because news-driven shares like Echo Energy need a good flow of positive news to keep the stock rising. Chief executive Fiona MacAulay said: “We are delighted that the first step of this exciting workover campaign has been safely and successfully completed, re-entering the well and establishing gas flow to the wellhead without any requirement for artificial lift.”

Cuts both ways

However, news can work both ways. Echo doesn’t make any profits yet so investor sentiment relies on expectations of future profits. If the operational news is good, sentiment towards the stock improves and the stock can go up, but if the news falls short of expectations or is plain negative the share price can sink like a stone. This is definitely not a stock for widows and orphans, and if you are tempted to pile in, it’s a good idea to keep your position size modest and as part of a diversified portfolio – betting the farm would be super risky!

Echo itself is doing its best to manage down investor enthusiasm saying that it considers the initial gas flows to be a positive first indication, but is “cautions that they should not be considered conclusive until the extended flow and build-up test is complete.”  The post-test flow rates could be higher or lower than those indicated in today’s announcement. 

To put things in perspective, Echo Energy’s shares were trading above 95p at the end of 2013 and below 1p in the Autumn of 2016. Maybe the firm truly is on the cusp of operational transformation this time that could lead to stronger trading economics and decent total returns for investors. But as you can see, there’s still a lot of risk for investors here. I think ‘right now’ could end up being a good time to embrace this risky stock, but I remain very, very cautious.

The post Should you pile into Echo Energy, up 14% today? appeared first on The Motley Fool UK.

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Alongside this, companies such as Tullow Oil (LSE: TLW) have made major changes to their business models. For example, cost and debt reduction have become more important, while production growth has also been necessary due to the lower oil prices of recent years. As such, the prospects for the industry remain bright and there could be buying opportunities on offer.

Impressive performance

One such opportunity could be small-cap oil and gas company Echo Energy (LSE: ECHO). It released an update on Monday regarding its progress in Bolivia, with it having worked to progress the exploration opportunity in Huyaco and Rio Salado. This follows the signing of the joint venture agreement with Pluspetrol Bolivia, as well as the Rio Salado technical evaluation agreement between Pluspetrol and YPFB.

The company has been able to build a more robust model across the acreage under consideration. This follows complex advanced techniques that were used to enhance seismic data. The company will now focus on defining the prospectivity across the Huyaco and Rio Salado acreage, while also considering other complementary opportunities in the region.

Alongside its update on operations in Bolivia, Echo Energy also announced the appointment of a COO. With the company seeming to have a sound strategy through which to offer improving news flow alongside a stronger outlook for the wider oil and gas sector, its share price performance could get a boost over the medium term.

Changing strategy

As mentioned, Tullow Oil also appears to have an improving outlook due to a change in strategy. The company has focused on boosting its production in recent years, with the addition of the TEN project to its producing asset base. This is expected to lead to a return to profitability in the current year, which could create improving investor sentiment.

With Tullow Oil currently trading on a forward price-to-earnings (P/E) ratio of around 13.5, it seems to offer good value for money. Certainly, its debt levels remain high and they could be unsustainable should the oil price fall. However, with leverage falling, the company’s risk/reward ratio may improve in future.

The prospects for the oil price appear to be positive. Reduced supply from OPEC countries appears to have provided a catalyst to the price of black gold. Further restrictions could mean that demand and supply growth remain in equilibrium over the medium term.

As such, while a return to triple-digit prices may not be on the cards, the outlook for the industry is perhaps the most positive it has been for a number of years. Therefore, stocks such as Tullow Oil could be worth buying now for the long term.

The post Tullow Oil plc isn’t the only top value stock I’d buy right now appeared first on The Motley Fool UK.

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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Shares in Echo Energy (LSE: ECHO) have been suspended from trading today after the company announced that it was in the process of negotiating a transformational acquisition. 

According to the firm’s press release on the matter, management is currently holding talks over a potential new buy in South America. However, due to the size of the purchase, the transaction would constitute a reverse takeover and as such the company’s shares have been suspended from trading. 

The group’s shares will remain suspended until a new admission document is published and after shareholders have approved the transaction – or the proposed deal is cancelled.

A big deal 

Unfortunately, as of yet, there are no further details on the transaction, but it looks as if this will be a transformational deal for the business. Earlier this month management praised a very active period for company development in the prior weeks and informed shareholders that “we have continued to assess multiple opportunities in the region.”

And unlike the majority of other small oil & gas explorers, Echo is cash rich. The company ended the six-month period to June 30 with £25.5m of cash on the balance sheet after acquiring two exploration blocks in Bolivia. 

Charting a course for success 

Going forward, as with all oil minnows, Echo’s success depends on management’s ability to select the best quality assets and bring production on-stream efficiently and under budget. 

The new management team led by CEO Fiona MacAulay and chairman James Parsons seems highly motivated, and management is certainly not wasting any time expanding the group’s asset base. If the firm continues on this track, I believe that there’s a high chance investors could be well rewarded over the long term. That being said, while Echo could be a multi-bagger, as with all early-stage oil and gas companies, the risks of failure are high. 

A safer buy? 

Echo is a high-risk, high-reward play. If you’re looking for a lower-risk opportunity which still has the potential for outsized gains, the Midwich Group (LSE: MIDW) might be a better buy. 

Midwich is a specialist audio visual, professional video, film, broadcast, lighting and document solutions distributor. A relative newcomer to the public markets, the firm has quickly made a name for itself. Over the past year, the stock is up more than 100%. 

It looks as if these gains could be just the start of the company’s growth. City analysts have pencilled in earnings per share growth of 15% for 2017 and 9% for 2018. If Midwich hits these targets, the company will have more than doubled pre-tax profit in just under two years. 

To help boost growth, management is reinvesting cash generated from operations into acquisitions, a strategy that’s already paying dividends and should continue to yield results. Recent acquisitions have been incorporated into the group with no issues and are already producing results —  a sign that management knows what it’s doing when it comes to deal-making, which bodes well for future expansion plans. 

The post Buying these two stocks now could make you a millionaire retiree appeared first on The Motley Fool UK.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

This project has been completed on time and under budget and has an expected production life of up to 25 years.

Cheap or expensive?

The completion of the Kraken project should enable Enquest to cut capital expenditure and focus on cash generation and debt repayments. Operational costs are expected to fall to between $21 and $25 per barrel in 2017, thanks to the impact of Kraken production and to cost reductions across the board.

Analysts expect Enquest’s revenue to rise by 18% to $944m this year and by 59% to $1,501m in 2018. After several years of losses, a net profit of $145m is forecast for 2018. This is expected to translate into earnings of $0.18 per share, giving a forecast P/E of 2.1.

Surely that’s too cheap? Well, maybe. The big risk facing shareholders is that the company must start repaying the $1.8bn net debt mountain it’s built up while developing Kraken. Doing so will absorb much of the group’s cash flow over the next few years.

Enquest shares doubled at the start of this year, as the market priced-in a sustained recovery in the price of oil. That hasn’t happened. The price of Brent Crude oil has fallen by 18% so far this year, while the share price has fallen by 25%.

In my view, buying these shares is effectively a bet on a near-term recovery in the price of oil. This seems risky to me. I think there are better options elsewhere.

Another four-bagger?

Chief executive James Parsons gained a big following in 2016, as shares of the gas exploration and production company he runs, Sound Energy, climbed 450% in just four months.

Now investors are betting that Mr Parsons can repeat this trick at Echo Energy (LSE: ECHO), where he took over as chairman in March. Echo’s strategy is much the same as that of Sound. The firm plans to invest in gas exploration projects in Latin America and develop these into a gas production business.

Mr Parsons scored a coup when he recruited the former chief operating officer of Rockhopper Exploration, Fiona MacAulay, to be his chief executive. Echo has also attracted debt and equity funding from institutional backers, which has given the group a £26m war chest.

The company’s first acquisition is an 80% interest in the 75 sq km Huayco block in southern Bolivia. This comes with 3D seismic survey coverage and is close to gas export pipelines, which could provide access to Brazil and Argentina.

Management estimates that Huayco could have “multi-Tcf gas potential”. If Huayco does contain trillions of cubic feet of commercially-viable gas, it could be very valuable. But it’s far too early to say.

Echo’s market cap of £58m is already pricing-in a high degree of expectation for a company with no revenue and just one exploration asset. I’d wait for a cheaper opportunity to buy.

The post These small-cap oil stocks could be dangerously overvalued appeared first on The Motley Fool UK.

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Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.