Will Tullow Oil plc, Lamprell plc and Ophir Energy plc ever deliver multi-billion pound profits?
In 2012, Tullow Oil(LSE: TLW) recorded a pre-tax profit of over $1.1bn. However, in the last two years it has made combined losses of over $3.3bn, which shows just how challenging the oil and gas industry has become.
Clearly, returning to high levels of profitability is a long-term goal for Tullow and while it's possible for almost any company to do just that over a period of many years, the reality is that Tullow is a very long way off such a level of financial performance. In fact, in the current year it's due to record a pre-tax profit of around $100m.
However, this doesn't mean that Tullow should be avoided. That's because its $100m pre-tax profit from 2016 is forecast to increase to around $285m in 2017 and could then rise yet further. The key reason for that is the company's Project TEN coming onstream later this year, which has the potential to significantly boost production, profitability and Tullow's share price. With it having a price-to-earnings-growth (PEG) ratio of just 0.2, it seems to be worth buying right now.
Also having the potential to deliver improved share price performance is Lamprell(LSE: LAM). The oil and gas support services firm may not be anywhere near delivering a 10-figure bottom line, but its long-term future could be relatively bright.
Certainly, in the short run its shares may come under a degree of pressure since Lamprell's earnings are expected to fall by 22% in each of the next two years. However, with Lamprell trading on a price-to-earnings (P/E) ratio of 9.8 and even taking account of those disappointing earnings forecasts, it appears as though the market has already priced-in a tough period for the business. And while spending in the oil and gas industry continues to be cut, a rising oil price could ease the pressure on producers and cause them to invest more heavily in their long-term capabilities. Therefore, while Lamprell may not perform exceptionally well this year, it has the potential to do so in future years.
Sliding share price
Meanwhile, Ophir Energy's(LSE: OPHR) share price continues to slide, with it having fallen by 13% in the last month alone. Its bottom line is due to remain in the red over the next two financial years, so hopes of multi-billion pound profits seem to be rather misplaced. And with it having announced that a planned deal with Schlumberger won't be going ahead, investor sentiment could worsen in the short run as investors begin to price-in a less optimistic outlook for the company.
Looking ahead, Ophir will now take time to attempt to reach deals with other potential partners and has delayed any investment decision regarding its Fortuna project in Equatorial Guinea. It now also anticipates that first gas will be produced in 2020. As a result of deteriorating investor sentiment and higher uncertainty than a few weeks ago, it may be best to watch rather than buy Ophir at the present time.
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Peter Stephens has no position in any shares mentioned. 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.