Could this micro-cap stock compete with BP plc soon after surging 15% today?
With Brent crude climbing above $60 a barrel and Saudi Arabia pressing to cut OPEC output again, now could be a good time to pour back into oil stocks. The following two companies are as different as can be, but might balance each other nicely.
Minnow oil explorer Europa Oil & Gas(LSE: EOG) jumped almost 15% in early trading after publishing its final results this morning. The AIM-listed exploration and production company has a market cap of just £18.84m, so investors should be ready for volatility in every direction. That has been the pattern over the past year, with short-lived price spikes in January, May and July.
Even after today's jump, the stock trades at just 6.5p, way below its 52-week high of 9.38p. The message is to avoid buying at the top of the spike and despite today's surge there is no rush, quite the reverse. So is this one to pop onto your watchlist?
Europa Oil & Gas combines high-impact exploration assets in offshore Ireland with interests in exploration, production and development in onshore UK, plus further hydrocarbon interests in France. Today's final results for the 12 months to 31 July showed revenues up a healthy 23% from £1.3m to £1.6m. The company did see post a pre-tax loss of £700,000, but this was down from a hefty £1.9m in 2016 (blamed on a £1.2m exploration write-off in Béarn des Gaves).
Over 2017, operating activities consumed £260,000 of cash, down slightly from £320,000 in 2016. The good news is that its cash balance has improved to stand at £3.6m on 31 July, up from £1.7m one year earlier. CEO Hugh Mackay reported a record year for corporate activity including farming out of a 70% interest in one of its South Porcupine licences to Cairn Energy and two separate sales of its interest in the Wressle oil field in the East Midlands.
Moving on upstream
There could be further excitement ahead as it prepares to start drilling activity at the conventional Holmwood prospect in the Weald and awaits the green light for its Wressle discovery, which would add around 100bopd to existing production and bring its operational breakeven down to US$35 a barrel. Europa will remain risky, but the upside is worth exploring. Take your time.
Oil giant BP(LSE: BP) is also enjoying a spike, up 12% in the past three months, as oil hits a two-year high while the company reports that it can break even at just $47 a barrel. The group is back in the black, with Q2 profits of $553m against a loss of $2.25bn one year before, thanks to an improved upstream performance.
Production grew 6% in the first six months of 2017, alongside an 18% reduction in its unit operating costs. Net debt looks towering at $39.8bn, up from $30.9bn one year before, but this was mostly down to ongoing costs from Deepwater Horizon. BP expects to reduce its debt pile as these payments slow down and the returns from its divestment strategy start to roll in.
BP has survived the worst of the oil price sell-off with its dividend intact. The stock is now on a forward yield of 5.9%. Cover is thin at 0.7 but a big improvement on zero. Bullish revenue, profit and earnings per share growth forecasts for 2017 and 2018 make a strong buy case for BP.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays. 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.