The cause of this crash was news that the company has received a 3p per share takeover offer. Given that the stock closed at 18p on Thursday, you might expect an offer like this to be instantly dismissed. The problem for Petroceltic is that it’s in default on debts of $217.8m, and has been unable to raise fresh cash.

Today’s offer comes — as expected — from Petroceltic’s largest shareholder, hedge fund Worldview, which has a 29.6% stake in Petroceltic.

The deal is simple. Worldview’s subsidiary, Sunny Hill Limited, will pay 3p per share for Petroceltic’s equity. Worldview and Sunny Hill will also do a deal with Petroceltic’s lenders to take ownership of the firm’s debt and refinance its operations.

Lenders in control

Petroceltic shareholders may feel that this deal, which values Petroceltic’s equity at just £6.42m, doesn’t reflect the value of the firm’s flagship Ain Tsila gas field in Algeria. This may be true, but it doesn’t really matter. As Petroceltic is in default, its lenders are calling the shots and equity holders have few rights.

Petroceltic bonds currently trade at a big discount to their face value. The top priority for the firm’s lenders is to minimise their own losses. This is why they’ve been giving Petroceltic extra time to try and find a buyer.

If today’s offer isn’t approved, I suspect that Petroceltic’s lenders will call in their debts, forcing the firm into administration. The shares will be suspended while the administrators try and find investors willing to buy the assets or refinance the debt. This process would almost certainly end with Petroceltic shares being delisted with zero value.

Today’s offer is probably the best possible result for Petroceltic shareholders. However, as I write, the shares are still trading well above the offer price, at 10p. In my view this is a great opportunity to sell before they fall further, as I believe they will.

Gulf Keystone could be next

Another firm with problematic debts is Gulf Keystone Petroleum (LSE: GKP). Although the firm’s current valuation means that its 639m barrels of reserves are priced at around $1/barrel, Gulf still hasn’t been able to attract a buyer.

This isn’t entirely surprising, given that Gulf is owed around $280m for past production by the Kurdish authorities. The Kurds have big problems of their own, so cash for foreign oil companies is tight.

Gulf is currently receiving $12m per month, or $144m per year, from the Kurdish authorities. Based on Gulf’s interim results, I estimate that this is probably just enough to allow the firm to break even with minimal capital expenditure. Gulf also has some cash on hand, so the firm isn’t going to fold tomorrow.

The problem is that in 2017, Gulf will have to repay or refinance $575m of debt. It’s hard to see how this will be possible. Indeed, the firm’s bonds currently trade at a big discount to their par value, suggesting that bond market investors are expecting a default.

For this reason — and because further payment problems may arise in the meantime — I rate Gulf Keystone as a strong sell. For equity investors, the risks are simply too high.

The post Will Gulf Keystone Petroleum Limited Crash Like Petroceltic International PLC? appeared first on The Motley Fool UK.

More reading

• An Important Update From The Motley Fool UK
• Here’s how much to put in your ISA if you hope for passive income of £21,000
• Here’s how someone could start buying shares for the price of a weekend break
• 2 top growth shares to consider on the London Stock Exchange
• £20k invested in a Stocks and Shares ISA this time last year is now worth…

Roland Head 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.

Amerisur Resources

Shares in South America-focused oil producer Amerisur Resources rose by as much as 20% this morning. The trigger for the gains was news that work has begun on an under-river pipeline that will connect Amerisur’s Platanillo field in Colombia with an oil pipeline in neighbouring Ecuador.

The new pipeline connector is expected to take around 35 days to complete. Oil transportation could start in March. According to the firm, the new pipeline connection should cut operating costs for the Platanillo field from $27 per barrel to just $17 per barrel.

Given that production is currently around 5,000 barrels of oil per day, this equates to an annual saving of more than $18m. The new connector also paves the way for increased production in the future. It’s a big win for Amerisur, which I believe could be a good long-term buy at current levels.

Petroceltic International

Shares in Petroceltic International popped higher when markets opened this morning, following news that the firm has sold its assets in Egypt for $9.5m to partner Edison International.

The shares have since pulled back a little from this morning’s highs — and with good reason, I’m afraid.

Petroceltic owes $217.8m to its lenders, on which repayments were due at the end of last year. The firm doesn’t have the cash to meet these requirements and is currently only able to continue trading because its lenders have agreed to provide some breathing room while Petroceltic tries to find a buyer.

It’s thought that Petroceltic’s largest shareholder, hedge fund Worldview, might make an offer. The problem for shareholders is that since Petroceltic is in default on its debts, all Worldview needs to do to take control of the firm’s assets is to agree a deal with Petroceltic’s lenders. Shareholders would probably get almost nothing in such a scenario.

Today’s news makes no difference to this situation, and Petroceltic is a strong sell, in my opinion.

Rockhopper Exploration

Oil firms with high levels of debt and no cash flow are a risky buy in today’s market. By contrast, Amerisur has net cash and revenues, and is attractive. I also think that Rockhopper could prove to be a good investment.

The Falkland-focused firm expects to reach the end of 2016 with net cash of $70 to $80m. Following the recent completion of its merger with Falkland Oil And Gas, Rockhopper has 2C contingent resources of more than 250m barrels in the North Falkland Basin. Contingent resources are oil or gas resources that definitely exist, but haven’t yet been shown to be commercially viable.

Ignoring net cash, Rockhopper’s current £123m market capitalisation values this oil at around $0.70 per barrel. If the Sea Lion development goes ahead and these resources are converted to commercial reserves, I’d expect Rockhopper’s valuation to be several times greater than it is now.

Rockhopper could be a good stock to buy and forget about for a few years. The oil market will eventually recover, and Rockhopper is well positioned to ride out the storm.

The post Why Are Amerisur Resources plc, Rockhopper Exploration Plc and Petroceltic International PLC Rising Today? appeared first on The Motley Fool UK.

More reading

• An Important Update From The Motley Fool UK
• Here’s how much to put in your ISA if you hope for passive income of £21,000
• Here’s how someone could start buying shares for the price of a weekend break
• 2 top growth shares to consider on the London Stock Exchange
• £20k invested in a Stocks and Shares ISA this time last year is now worth…

Roland Head 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.

In interim results on Wednesday, Wood Group reported a 19.3% decline in revenue and said that market conditions remained challenging. That’s no surprise. What was surprising was that the firm’s operating margin of 5.6% was almost unchanged from the 2014 figure of 5.9%.

One reason Wood Group’s profitability has remained so strong is that it has been able to cut costs and reduce staffing levels very rapidly. The firm said that cost savings of $40m were ahead of expectations, and that group headcount had fallen by 13% since December.

As I write, Wood Group is trading at around 550p. This puts the firm’s shares on a 2015 forecast P/E of 11, with a prospective yield of 3.5%. I think there’s a strong chance that these shares will turn out to be a good medium-term buy at this level.

What about LGO and Petroceltic?

When oil prices crash, Wood Group can slash pay rates and dispose of surplus contractors in order to cut costs.

For small oil and gas producers like LGO Energy (LSE: LGO) and Petroceltic International (LSE: PCI), it’s not so simple. Although drilling and other operating costs are falling, they are tied into project plans designed for much higher oil prices.

Each company also has its own specific issues.

Petroceltic

Shares in Petroceltic fell by 7.4% in the first hour of trading this morning. The trigger for the fall was a public letter from the firm’s largest shareholder, activist investor Worldview Capital Management.

Yesterday, Petroceltic published details of contract awards for its Ain Tsila development in Algeria.

This morning, Worldview published a letter asking Petroceltic to clarify public allegations made against the firm’s management relating to its operations in Algeria.

Petroceltic is at the centre of a long-running dispute over corporate governance with Worldview. Although some of the firm’s assets are attractive, I’m not sure it’s worth the risk of buying into a firm that’s attracting so much negative attention.

LGO production?

Over at LGO Energy, the picture should be simpler. LGO is drilling lots of relatively cheap, quick wells in order to tap into the oil in its Goudron field in Trinidad. This morning, LGO announced initial production from the Drilling Pad 5 GY-675 well of 325 barrels of oil per day (bopd).

That sounds promising, but my concern is that production rates from Goudron wells may not be sustainable.

On 6 January, LGO said that its GY-670 well was flowing at a restricted rate of 1,045 bopd. The group’s 10-day average production rate was reported to have “exceeded 2,000 bopd since the 23 December 2014”.

Despite this, the most recent operational update from LGO, on 29 July, reported group production averaging 951 bopd during Q2.

What’s happened to LGO’s production between January and August? Today’s testing update did not include an update on group production, so investors may have to wait a little longer to learn more about this situation.

The post Is John Wood Group PLC A Better Buy Than LGO Energy PLC and Petroceltic International PLC After Today’s News? appeared first on The Motley Fool UK.

More reading

• An Important Update From The Motley Fool UK
• Here’s how much to put in your ISA if you hope for passive income of £21,000
• Here’s how someone could start buying shares for the price of a weekend break
• 2 top growth shares to consider on the London Stock Exchange
• £20k invested in a Stocks and Shares ISA this time last year is now worth…

Roland Head 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.

Of course, the lower oil price is a direct cause of an increase in the company’s loss. Petroceltic did not report any impairments to its asset base in 2013, but in 2014 it wrote off $83m in the value of its Egyptian and Bulgarian assets. In addition, exploration write-offs were also substantial last year and totalled $183m, up from $37m in the previous year.

Despite this, Petroceltic’s production figures were in-line with expectations. The company produced 22.5m barrels of oil equivalent per day in 2014 but, with the price received for each barrel being significantly lower than in the previous year, the company was fighting an uphill battle. And, while the outlook for the oil price moving forward is somewhat bearish, Petroceltic has decided to reign in production and is expected to produce just 15m boepd in the current year.

Clearly, lower production alongside a declining oil price is likely to mean even lower revenue and, potentially, greater losses in the current year, with Petroceltic announcing a three-year bond issue of up to $175m to provide it with additional funding over the medium term.

Of course Petroceltic is not the only oil and gas company enduring a challenging period. Enquest (LSE: ENQ), for example, also booked significant impairments in its most recent financial year, with its asset base being written down by $335m. Furthermore, with Enquest operating out of the North Sea, where costs can be higher than in other parts of the world, a depressed oil price may hurt it more than many of its sector peers, which could cause investor sentiment to further weaken.

Similarly, Ophir (LSE: OPH) is also enduring an uncertain period regarding its financial outlook. Even though it released an update to say that its reserves were still in-line with management’s previous estimates, its shares have fallen heavily in 2015 and are down by 20% year-to-date. This is at least partly because of the loss of a key financial backer, Kulczyk Investments, which recently announced the sale of its 8% stake, thereby creating additional uncertainty about the future prospects of the business at a time when inward investment is a key priority for oil and gas stocks.

However, the falling oil price has not hurt the prospects for LGO (LSE: LGO). It reported today that it is happy with the progress being made in its 2015 drilling programme and, despite a 20% fall in its share price since the turn of the year, seems to be worth buying at the present time. That’s because the company’s main asset, the Goudron field in Trinidad, remains economically viable even with the oil price being depressed.

And, with the potential for more positive news flow from its drilling programme and the prospect of increased production from next month, now could be a good time to buy a slice of LGO. Certainly, to me its prospects appear to be superior to those of Petroceltic, Ophir and Enquest at the present time.

The post Is Petroceltic International PLC A Better Buy Than LGO Energy PLC, Enquest Plc And Ophir Energy Plc? appeared first on The Motley Fool UK.

More reading

• An Important Update From The Motley Fool UK
• Here’s how much to put in your ISA if you hope for passive income of £21,000
• Here’s how someone could start buying shares for the price of a weekend break
• 2 top growth shares to consider on the London Stock Exchange
• £20k invested in a Stocks and Shares ISA this time last year is now worth…

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.