Last year, shares in Hurricane Energy (LSE: HUR) four-bagged after the company reported the largest undeveloped discovery of oil in UK waters. Following last years breakthrough, over the past 10 months management has been working hard to get the projects development underway, and the company is now on-track to for first oil to flow in 2019.
However, despite Hurricanes bright outlook, theres another small-cap oily that I believe presents a better buy for investors.
A long way to go
Over the summer, Hurricane raised $547m through a mix of convertible debt and equity to finance itsLancaster North Sea oil project. The regulatory green light for the project was given at the end of September and construction of the infrastructure required tostart production during the first half of 2019 is already underway.
But theres still a lot to do before Hurricane is actually producing oil. For example, the early production system, which will initiallytarget production of 17,000 barrels of oil per day, needs to be commissioned and manoeuvred into place.
On the other hand, Hurricanes peer Amerisur Resources (LSE: AMER) is already producing oil. And unlike Hurricane, which now has a mountain of debt to maintain and repay, Amerisur has a squeaky clean balance sheet.
Strong balance sheet
For the six months ending 30 June 2017, Amerisur reported cash and equivalents of $29m, and a cash inflow from operations of $8.5m. Thanks to the commissioning of a new pipelineallowing the company to export its oil production without having to rent oil tankers, the operating netback per barrel produced increased by 164% year-on-year to $29.6, up from last years $11.2. Adjusted EBITDA for the period rose 986% to $7.6m.
The fact that the South America-focused oil producer is netting nearly $30/bbl from its oil production and generating cash with oil prices at $50/bbl is a testament to the firms low-cost operations and managements cost-cutting actions.
As well as cost-cutting, management has been busy using the firms cash-richbalance sheet to acquire distressed assets during the past few years. On these assets, the firm is targeting 16 gross new wells by the end of 2018 as it looks to boost production and cash generation. All drilling activity is expected to be funded byexisting cash resources and cash generated.
Profitable growth
For 2018, City analysts are expecting Amerisur to report earnings per share of 1.9p, up 280% from 2017s figure of 0.5p. Based on these numbers, the shares are trading at a forward P/E of 13.1.
Hurricane, meanwhile, isnt expected to produce any income until 2019, and plenty could go wrong for the business both before and after its Lancashire prospect comes online.
With this being the case, I believe that Amerisur is a better buy. The firm is already generating cash, has a strong balance sheet, and is well positioned to profit as oil prices move higher.
Not interested in Amerisur?
If neither of these oilcompanies isfor you,there are plenty of other undervalued growth opportunitiesout there with brighter outlooks.
Indeed, we believe that the company profiled in this report could be one of the market’s top small-caps that is set to generate outsized returns for investors over the long term.
If you’re interested in learning more about this opportunity, click here to download the free, no obligation report today.