Is Hurricane Energy plc a more tempting falling knife than SOCO International plc?
The plunging oil price has been toughest on smaller oil explorers, with falling knives everywhere you look in this sector. With Brent crude back at $54, could now be the time to grab one of them? Here are a couple to consider.
Soco, so good
Vietnam-focused Soco International (LSE: SIA) reported its interims for the half-year to 30 June this morning after a torrid three years where its share price has fallen 70%. Its stock is flat following publication, yet there was some positive news in these results.
In Vietnam, Soco averaged 29,600 barrels of oil equivalent per day gross and 8,606 barrels net to its working interest, which it described as "stable" even though both are down from 37,180 and 10,862 last year. Good news for loyal shareholders came in the form a $21m final dividend payout at 5p per share for 2016, up from $9.4m year-on-year. Forecast yield is 4.3%.
Management also hailed ongoing balance sheet strength, with a half-year-end cash and liquid investments balance of $132m, up from $100.3m on 31 December, and no debt. Soco was boosted by collecting $42.7m from the 2005 sale of Mongolia assets in March. It reported impressively low cash operating costs of just under $13 a barrel, up from $10 last year, while achieving an average realised crude oil price of $53.90 a barrel, a $2.13 premium to Brent and better than last year's $40.89. The company has positioned itself for cheap oil.
Cash capital expenditure fell from $27.2m to $15.5m, revenues rose slightly from $72.7m to $74m, and net operating cash flow rose from $16.2m to $27.1m, Also, net losses halved from $12.2m to $6.7m.
President and CEO Ed Story praised the company's tenacity and financial strength, which have helped it endure "low oil prices and harsh macro-economics, whilst delivering sustained cash returns to shareholders". 2017 capital expenditure of $35m in Vietnam and $15m in Africa should be fully funded from existing cash resources.
Analysts are pencilling in earnings per share growth of 367% in 2018, so maybe Soco can thrive again, although in this volatile sector I take such forecasts with a pinch of salt. If you are brave and bullish on oil, Soco could be one to watch.
UK-focused oil and gas explorer Hurricane Energy(LSE: HUR) has also had a dismal time lately, its share price hammered in June after announcing it needed to raise another $520m to develop its Greater Lancaster Area project in the North Sea, via $300m of equity and $220m in convertible bonds, diluting existing shareholdings and calming investors who have got over-excited by media talk of a billion barrels lying in the North Sea.
Hurricane has described Lancaster as "the largest undeveloped discovery on the UK Continental Shelf" producing a potential 17,000 barrels per day, but it does not expect to drill any oil until the first half of 2019, and this kind of deadline has a tendency to be set back. Oil industry retrenchment has cut the cost of drilling and exploration, helping Hurricane, although that process is largely overland.
The oil price recovery may boost sentiment but I remain cautious on this front. Yes, it has picked up lately, but could quickly retreat again. It would take a brave investor to catch either of these falling knives, but with Soco pumping oil and returning cash to shareholders today, I would favour it over Hurricane Energy's full force uncertainty.
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Harvey Jones 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.