Five years on and the company is worth nearly 90% less than it was at the 2012 peak. But the critical question is, is this an opportunity to buy ahead of further growth, or should you give up on Tullow and buy its smaller peer Sound Energy (LSE: SOU) instead? 

Where’s the growth gone? 

Since 2012, Tullow Oil has gone into survival mode. Low oil prices have curtailed the business’s ability to pay down debt and fund exploration. As a result, the company’s capital spending is set to fall to just $300m this year, compared to the peak of $2.4bn for 2014. 

Luckily, the group’s most significant capital spending obligation, its TEN project, is now complete and producing cash flow. Thanks to better than expected production from this asset, as well as its Jubilee field, net debt fell to $3.6bn at the end of October, down from $3.8bn three months before. For the full-year, management is forecasting free cash flow generation of $400m. 

Tullow is making progress, but the company is still held captive by its debt. Getting that down to more acceptable levels will be management’s biggest priority in the years ahead. 

Growth flexibility 

Meanwhile, Sound Energy is pushing ahead with what could be a transformational project for the company in Africa. 

After completing the acquisition of its interests in the Oil & Gas Investment Fund in Eastern Morocco, which it funded by placing 27% of its share capital, management believes that this prospect could be utterly “transformational for both Sound Energy and Morocco“. The latest surveys suggest these prospects could yield a best-case scenario of 8.9trn cubic feet of gas.

However, management is also warning that investors should not stake everything on success at the drill bit just yet, warning: “There can be no guarantee that its current estimates of volumes of gas originally in place will be substantiated by exploration drilling or would actually be available for extraction”.

Still, unlike Tullow, Sound has a strong balance sheet with which to pursue the development of its Morocco prospects. At the end of June, the firm reported a cash balance of $50m and debt of just under $18m, giving a net cash balance of $32m.

Flexibility 

Sound is a high-risk growth play, but compared to Tullow, the group looks to me to be the better buy. With a cash-rich balance sheet, Sound has more flexibility and cannot be controlled by its creditors.

If Tullow’s creditors decide to pull the plug on the business, shareholders will be hung out to dry. So, you could argue that an investment in Tullow is, in fact, riskier than a similar investment in Sound.

All in all then, as a growth buy, I believe Sound is a better bet than Tullow. 

The post Which is the better growth stock: Tullow Oil plc or Sound Energy plc? 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.

First gas from Kiliwani North, in which Solo has a 6.175% interest, is expected to ramp up to production of around 4,000 to 5,000 barrels of oil equivalent per day over the next 90 to 100 days. And that was enough to push the share price up 24% to 0.36p on the day.

Then today we hear of a 320m share issue, to raise £800,000 for Kiliwani development and take the firm’s interest to 8.425%, but which will dilute existing shareholders’ interests. The shares promptly gave up Wednesday’s gains and are now back at 0.28p. I’m sure the timing, straight after Wednesday’s good news, is purely coincidental, but it does illustrate why I wouldn’t touch a cash-burn investment like Solo. By the time it’s profitable, we’ve no idea how badly we’d have been diluted out of it by fresh cash-raising.

Running out of cash

The reason I’d dump Gulf Keystone Petroleum (LSE: GKP) is also simple — it’s at great risk of going bust. Although the firm’s Shaikan development in the Kurdistan region of Iraq is a world-class asset, Gulf Keystone is rapidly running out of money because it’s not been getting the cash from the regional government for all the oil it’s exported.

Sure, there’s a payment schedule in place now and Gulf is seeing some cash trickle in, but it seems like too little, too late to me. The big problem is that Gulf has debt repayments to meet of $250m in April 2017 and $325m in October 2017. And the company has come about as close as it can to admitting that it can’t continue for much longer without a serious injection of cash. It said it “continues to actively review options to secure new funding and restructure the Company’s balance sheet, to ensure it is able to continue as a going concern“.

The shares are down 83% in 12 months, to 6.4p, and down 98% since their 2012 peak, but I’m hearing echoes of Afren here, and I reckon there could easily be a further 100% to go.

Transformational?

Shares in video technologist Blinkx (LSE; BLNX) soared to around 230p in late 2014, but crashed back down when it became clear that the company had missed the massive switch to mobile computing and had to re-engineer its products to match. Today the shares trade at just 18.7p.

The latest dip came in response to Tuesday’s trading update, in which its chief executive S Brian Mukherjee described 2015-16 as “a transformational year for the industry and the company“. The trouble is, as my Foolish colleague G A Chester astutely pointed out, a year ago, the firm described 2014-15 as “a transformational year for both the online advertising sector and blinkx“.

Meanwhile, revenues are transforming into smaller sums, with $165m-$170m expected for this year, down from $215m last, and there’s an EBITDA loss of $10m-$11m on the cards. And the market is transforming into a more competitive one, with advertising prices falling and margins being squeezed. I can’t help feeling Blinkx has missed the boat.

The post Here’s Why I’d Sell Solo Oil PLC, Gulf Keystone Petroleum Limited & Blinkx Plc appeared first on The Motley Fool UK.

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Alan Oscroft 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.

Initial gas production commenced on 4 April and commissioning of the plant and associated pipeline will proceed over the next 100 days. Production will eventually build up to 25-30 mmcfd, which works out at around 4,000 to 5,000 barrels of oil equivalent per day. So, this is a sizeable production milestone for Solo and its project partners.

Under the terms of its gas sales agreement with the Tanzania Petroleum Development Corporation (TPDC), Solo will receive $3.00 per mmbtu for its share of production from the project. Management expects this agreement to yield net cash of $2m to $2.5m per annum to Solo.

Increasing interest 

Solo currently owns a 6.175% working interest in the Kiliwani North gas field, but this investment is set to increase to 10% over the next few months as certain project milestones are met. Solo’s further interest in the company will be built over three separate investments.

The first instalment, which was to be made after the signing of the special-purpose agreement laying out Solo’s additional interest acquisition timetable, will see Solo’s interest in Aminex increase by 1% to 7.2%. The next two payments, which together will take Solo’s interest in Aminex from 7.2% to 10% will be made 15 days after the first payment for gas from Kiliwani and within 15 days of the commercial operations date being declared, respectively. 

Set price 

As mentioned before, gas from the Kiliwani field will be sold at a set price of $3.00 mmbtu under a sales agreement with the TPDC and isn’t linked to any commodity price. In other words, now that the project has started production Solo’s cash flows are de-risked to a certain extent. As the company’s partners are receiving a set price for the gas produced, they can concentrate on maintaining operations and achieving the best operational performance from the well, a luxury few can afford in today’s oil price environment.

And there’s no doubt that today’s announcement has completely changed the investment case for Solo. This time last week, the company lacked any real income, and all of its value was locked up in the promise of production from its investment portfolio. What’s more, Solo was relying on constant placings to keep the lights on. But as of today, the company has been completely transformed. Solo is now a cash generative, profitable international oil & gas company.

Initially, Solo is planning to reinvest its resulting revenues from the Kiliwani project in growing its reserves base in Tanzania. The company has a 25% stake in the Ruvuma PSC in the country. 

Outside of Tanzania, Solo is participating in other projects with Horse Hill Developments Limited, UK Oil and Gas Investments plc, Pan Minerals Oil and Gas AG, and the company owns a 28.56% interest in 23,500 acres of petroleum leases in southern Ontario. 

The post Solo Oil PLC Jumps 25% After First Gas Production Announced appeared first on The Motley Fool UK.

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That sounds like good news, but the share price soon fell back to the 15p level when investors learned that development could cost around £2.5bn and take five years to complete — previous guesses had suggested around £2bn over a shorter timescale. But I reckon the news was mostly very good, suggesting low production costs and operating margins of 70%-85%.

The main risk now is in getting funding, with £1bn needed to get started, and that’s surely the key hurdle. It seems likely that it will be through a mix of debt and equity, which will dilute existing shareholders. But there should be plenty of future value there for everyone, and if the first round of funding is successful (and it might not be), I could then see the shares rerated upwards — but I expect volatility until then.

Oily darling

88 Energy (LSE: 88E) is the latest to set the oil investors hearts a-flutter, and it’s all about a major shale discovery in the firm’s Icewine Alsakan exploration announced on 15 February which is, apparently, in a “thermal maturity sweetspot“. Fracking is apparently a suitable approach to get hold of the stuff, so there should be a relatively short lead time to production — unlike with deeper deposits extracted through conventional pumping.

The result has been a more than tenfold rise in the share price since early February, to 3.7p today, so does 88E have a chance of becoming a further multi-bagger in the next few years? I’d say there’s a definite possibility — but the real risk is cash. The company has already needed to issue equity to keep itself going, the latest being a tranche of three million new shares which should be trading on AIM any day now, and there’s sure to be more fundraising needed before much longer.

Horse Hill Posse

The partners in the Horse Hill development in the Weald Basin have also been generating excitement, and shares in Solo Oil (LSE: SOLO), which has a 6.5% interest in the well, climbed 56% between 11 February and 7 March. But since then we’ve seen a 20% fall back to just 0.33p. That fall comes despite the latest flow-test news sounding pretty positive.

We heard that stable flow rates from the three intervals at the test well totalled 1,688 barrels of oil per day over a five-and-a-half day aggregate flow period, and that there was no sign of any falling pressure. The test has apparently beaten UK exploration records, and Solo chairman Neil Ritson called it “truly a game changing well“.

While I’m impressed by the oil discovery and have little doubt there are some nice riches there to be had, I’ve already said that I’m less than impressed by Solo Oil’s financial prospects. And no matter how good the recent update, I can still see existing Solo shareholders being diluted out of it by the time any profits show up.

The post Could Sirius Minerals PLC, 88 Energy Ltd And Solo Oil PLC Be The Hottest Growth Picks Around? appeared first on The Motley Fool UK.

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This point is further evidenced by last week’s results. Cape’s order intake increased by 13% in 2015 versus the prior year, with its order book standing 18% higher than at the same time last year. Furthermore, its operating cash flow rose by 29% and this allowed it to maintain dividends at 14p per share. This puts Cape on a dividend yield of 6%, which has huge appeal at a time when the FTSE 100 has a yield of around 4%.

Looking ahead, Cape is expected to post a fall in earnings of 18% this year and a further 1% next year. Despite this, its dividends remain well-covered at 1.7 times and with its shares trading on a forward price-to-earnings (P/E) ratio of 9.5, it seems to offer excellent value for money, too. Although the performance of the energy sector could deteriorate, Cape seems to be an appealing buy and while a correction can’t be ruled out if operating conditions worsen, the risk/reward ratio remains compelling for long term investors.

Rising fast

Among the top risers today are shares in SolGold (LSE: SOLG). It’s up by 17% at the time of writing despite there having been no significant news flow released. Of course, investor sentiment in SolGold has been strong since it released an update on 4 March, with Hole 16 at Cascabel continuing to intersect copper and gold mineralisation to a current depth of 1217m.

This is encouraging news for the company and with its shares having risen by 104% since the turn of the year, many investors may understandably wonder if a correction lies ahead. Although this can’t be ruled out, the gold price could have much further to run and this could have a positive impact on SolGold’s share price. After all, interest rate rises are likely to be slow and with there being a high degree of uncertainty among investors, gold miners and exploration plays could become increasingly popular over the medium term.

Going Solo

Meanwhile, shares in Solo Oil (LSE: SOLO) are up by 21% in the last three months as it continues to benefit from positive news flow regarding its stake in the Horse Hill development near Gatwick airport. Just this week, the stable dry oil flow rates from the three intervals in the Horse Hill-1 well when summed amounted to a higher-than-previously-reported 1688 barrels of oil per day (bopd). This is encouraging and although further results are due from tests, the commercial viability of the prospect has taken a step forward in recent weeks.

Clearly, Solo Oil is highly dependent upon news flow in the short run and if this disappoints then its shares could come under pressure. As such, it remains a relatively high-risk play, but for less risk-averse investors it has the potential to make considerable future gains – especially if the price of oil continues to tick upwards.

The post Are Solo Oil PLC, Cape PLC And SolGold plc In Danger Of Major Corrections? appeared first on The Motley Fool UK.

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UK Oil & Gas (LSE: UKOG), with a 30% stake in Horse Hill Developments, has seen its share price turn into a six-bagger since the end of 2014, to 2.5p. Its latest update on 9 March told us that the flow tests have delivered a stabilised rate of 168 barrels of oil per day (bopd) for a nine-hour period. In total, this has apparently achieved “a combined average stable rate of over 1,528 bopd from the two Kimmeridge and Upper Portland zones“.

Meanwhile, Solo Oil (LSE: SOLO), which has a 6.5% interest in the Horse Hill well, has actually seen its share price fall by 50% over the same period, to 0.35p — though it did spike to around 1.2p in late 2014.

Time to buy?

Would I buy into these companies and try to snag my share of the riches that are hopefully to come? Not a chance, and I’ll tell you why.

For one thing, I’m a good bit more risk-averse as I get older, but even in my younger days I doubt I’d have found this one attractive. It’s all about costs and cash… and there’s nowhere near enough of the folding stuff around right now.

As of 30 September, UK Oil & Gas was sitting on £4.6m in cash and equivalents. That was after having invested £3.7m in deals related to assets and acquisitions, and after posting an operating loss of £1.6m with revenue for the year coming to just £240,000. A good chunk of the firm’s cash came from the raising of £8.3m of new capital, mostly through the issue of new shares.

Meanwhile, at its halfway point in 2015, Solo Oil counted £1.3m in cash and equivalents, after having raised £2.7m during the half by issuing new shares. It reported a six-month operating loss of £372,000 with zero revenue, and further charges of £679,000. We’re more than eight months on from that now, and we really don’t know how much of that cash is left — but I can’t see it being a lot.

More share issues

My inescapable conclusion is that both are going to need a good bit more cash, and they’re going to need it soon. With only tiny revenue at one, none at the other, and no idea when either might turn a profit, I can see the need for fresh capital continuing for a few years yet — as is usually the case with smaller oil explorers at this stage in their lives.

There seems to be little appetite for debt funding these days, and after Afren bond holders only managed to get a few percent of their money back, that’s not surprising. So I can’t see how further equity issues can be avoided, and they would dilute existing shareholders to an as-yet-undetermined degree. And that’s just to keep current operations going — we have no idea of the full costs that will be associated with developing the Weald Basin discovery, but it won’t be cheap.

If you have a greater liking for risk than me and you go for it, I wish you well — but I’m out.

The post Why I’d Avoid UK Oil & Gas Investments PLC, Solo Oil PLC And The Rest Of The Horse Hill Mob appeared first on The Motley Fool UK.

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On the cost front, Glencore is seeking to deliver a further $400m of savings during 2016 and is in the process of reducing capital expenditure. In 2015, industrial capital expenditure was cut by 30% to $5.7bn and Glencore has now cut its target for 2016 capital expenditure by an additional $300m so that it will be around $3.5bn. Given the outlook for the commodities sector and Glencore’s high degree of leverage, this appears to be a sensible step to take and should improve free cash flow.

In addition, Glencore is seeking to improve its balance sheet strength and reported asset sales of $1.6bn. It’s confident of achieving as much as $5bn of asset disposals during the remainder of 2016 and with net debt levels being reduced to $25.9bn, it appears to be making progress with its restructuring. In fact, net debt is due to fall to $15bn by the end of 2017 and this could have a positive impact on investor sentiment since the market has been highly concerned about Glencore’s degree of leverage.

Clearly, today’s results are a major disappointment for investors in Glencore. However, they’re not unexpected since commodity price falls have been savage. The key for the company’s share price is how it reacts to the challenges it faces. And with debt levels falling, the company’s restructuring being on track and investor sentiment towards commodity stocks having the potential to improve, Glencore could be a sound, albeit risky, long-term buy.

Shares with potential

Also releasing news today was Solo Oil (LSE: SOLO), with its 6.5% stake in the Horse Hill discovery near Gatwick continuing to drive its share price higher. In fact, its shares have been up by as much as 17% today after announcing that water-free 40-degree API, light, sweet oil has flowed naturally to the surface at a stabilised rate of 900 barrels per day.

According to Solo Oil, the news provides a clear and unequivocal demonstration of the potential of the Kimmeridge limestone play, with the results obtained to-date indicating that commercial production could lie ahead over the medium term. As such, investor sentiment in Solo Oil could continue to improve following its share price rise of 28% since the turn of the year.

Clearly, Solo Oil is highly dependent on news flow at the present time. While there’s the prospect for further upbeat updates from the Horse Hill development, the reality is that disappointments are almost inevitable and could hurt investor sentiment in the short run. As such, it seems likely that Solo Oil’s share price will remain volatile, although since it has interests in multiple assets across the globe, it could be worth a closer look for less risk-averse investors.

The post Do Today’s Updates From Glencore PLC And Solo Oil PLC Make Them Star Buys? appeared first on The Motley Fool UK.

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We’ve recently had some impressive flow test results too, with both firms reporting on 16 February that oil graded as “light, 40 degree API, sweet” has flowed naturally from an 80-foot Lower Kimmeridge limestone layer at around 900 metres below ground.

Initially a 50/50 mix of water and oil emerged from a one-inch choke, then when the flow was choked back to a half an inch the flow improved to 99% oil. By the next day we heard that the flow had continued at a rate of 450 barrels of oil per day, which is better than had been expected, for nine and a half hours from a slightly smaller choke.

Price spikes

The news has helped drive an 80% spike in the UK Oil & Gas share price since the end of January, to 2.8p, with Solo Oil shares up 37% to 0.4p over the same period — these are very low priced shares, so do beware of any wide spreads if you’re thinking of buying them. But should you be buying them? Before you rush to snap up a chunk of the hoped-for Gatwick Gusher success, you need to consider the longer term.

The latest test results are undoubtedly good news, as they show there is sufficient pressure for the oil to be extracted without artificial lift. But seeing oil flow for half a day or so is a very long way from the months and years that we’d need for the project to turn into a genuinely viable long-term producer. And how much of the estimated 9.2 billion barrels can actually be extracted is still very much unknown. Further planned flow tests which will continue for significantly longer periods will reduce this uncertainty.

The price of oil itself is also a critical factor, after The Telegraph reported Globaldata energy research boss Matthew Jurecky as suggesting that once taxation is taken into account, the Horse Hill development might be looking at a break-even price of as much as $50 a barrel. The price seems to be steadying at around $34 a barrel for now, and in the long term should strengthen, but it could still go either way in the medium term.

Very big risk

The other big unknown is cost. It’s going to take a lot of cash to take this promising discovery all the way to profitable production, and we have no way of even guessing at how much dilution current shareholders will have to take — there’s a lot factored into the share price, but right now it’s unquantifiable.

I am relatively bullish about the price of oil in the longer term, and the Horse Hill discovery is looking very impressive to me right now, so I’m hopeful that this consortium of companies and their investors will do well out of it. But the known risks alone are to much for me, never mind the unknown unknowns. So if you’re tempted I wish you luck, but it’s not one for me.

The post Are UK Oil & Gas Investments PLC And Solo Oil PLC On The Verge Of ‘Gatwick Gusher’ Riches? appeared first on The Motley Fool UK.

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No guarantees

Encouragingly, Genel recently reported the receipt of further payments from the Kurdistan Regional Government (KRG). This is excellent for the company and with it also including a contribution towards previous outstanding amounts, it shows that over time the $millions which are owed to Genel for past oil exports could gradually be repaid.

With Genel trading on a price to earnings growth (PEG) ratio of just 0.4, it has clear upside potential. However, it remains a high risk play and therefore it may be prudent to await further payments of outstanding amounts before buying a slice of the business, since there are no guarantees of future payments given the instability within the region.

Positive potential

Also rising sharply today are shares in Solo Oil (LSE: SOLO). It is up 8% today and has soared by over 20% in the last week, due mainly to the positive news flow from the Horse Hill project in the UK. Solo Oil has a 6.5% interest in PEDL137, from which dry oil has continued to flow naturally at a stabilised rate of over 450 barrels of oil per day during a second day of testing. And with two further intervals yet to be tested, there is the potential for further positive news flow in the coming days and weeks.

As a result of this, there is the real prospect of more share price gains for investors in Solo Oil. However, the stock is very much dependent upon news flow and it is therefore very difficult to accurately ascertain its risk/reward ratio. Because of this, for most investors it seems prudent to stick to profitable oil and gas plays which trade on low valuations at the present time.

Bright future

Meanwhile, Rare Earth Minerals (LSE: REM) is up by 4% today after European Metals Holdings (in which it has a 11.9% stake) released an update to say it was very pleased with the drill results from the Cinovec project in the Czech Republic. Drillhole PSn01 returned an intercept of 156 metres averaging 0.46% lithium oxide, with the mineralised intercept including a high grade interval of 64 meters averaging 0.63% lithium oxide.

In addition, the lithium intercept from Drillhole PSn01 also contains zones which are significantly enriched in tin and tungsten, which is clearly good news for Rare Earth Minerals. And with demand for lithium in particular likely to rise in the long run as the world shifts towards cleaner energy, it seems to have a bright long term future. As such, it may be of interest to less risk averse investors.

The post Do Double-Digit Gains For Genel Energy PLC, Rare Earth Minerals PLC And Solo Oil PLC Make Them Buys? appeared first on The Motley Fool UK.

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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.

But you know what? Since December, the share prices have been steadier and the price of oil has picked up a little since mid-January. After dropping below $30 a barrel, Brent Crude is now fetching $34.

Up 50%!

In fact, since their recent bottom on 20 January, Tullow Oil shares have actually picked up 50%, Rockhopper is up 10% since its 8 January low, and Solo is up 8% since 25 January (and up 17% since 16 December). Does this signal the the start of the long-awaited recovery and a time to buy?

Tullow’s results on 10 February were pretty much as expected, even though they did include a $1.1bn operational loss and an extra $900m in debt added to the balance sheet, but the City responded calmly. Tullow does enjoy some low-cost assets, and its TEN field in Ghana should have operating costs of a mere $8 per barrel — although Tullow probably needs oil prices in excess of $40 to break even overall.

When the inevitable oil price rise happens, Tullow might look a good prospect, but its massive net debt of around $4bn makes me a bit twitchy. Even with $60 oil it would take a very long time to pay back that borrowed money, and I can’t see oil getting much above that level for quite some while.

Net cash

Rockhopper is in a very different position in that it has no debt. In fact, it has net cash on its books, expected to stand at around $70m to $80m by the end of 2016. And it has some tasty assets in the Sea Lion field in the North Falkland Basin. In a recent update, the firm reckoned it should be sitting on around 220 mmbbls of commercialised resources with a peak production of around 85,000 bbls per day, and a field life of around 20 years.

The big risk however, is that Rockhopper isn’t expecting first oil before 2020. It does have a farm-out agreement with Premier Oil that will help to hedge the risk, but the company’s valuation is total guesswork right now.

Smaller is bigger?

Moving to a tiny tiddler, with a market cap of just £15m, is Solo Oil worth a punt? Solo has some exciting potential, after it announced a further investment in the Kiliwani North Development Licence in Tanzania. For a payment of $2.16m to Aminex, Solo’s stake rises by 3.825% to 10%.

Solo is also a partner in the Horse Hill-1 Oil Discovery in the Weald Basin from which the latest flow tests look positive, with chairman Neil Ritson saying: “Early reports from the wellsite are extremely encouraging and certainly exceed our expectations for natural flow from the Kimmeridge limestones“.

Are any of these good investments right now? Well, they’re all risky in their different ways, but if we really are just past the bottom for oil prices then the timing could be close to perfect.

The post Does Steadying Oil Mean It’s Time To Buy Tullow Oil plc, Rockhopper Exploration Plc And Solo Oil PLC? appeared first on The Motley Fool UK.

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Alan Oscroft owns shares in Premier Oil. The Motley Fool UK has recommended Tullow Oil. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.