Oil prices have risen this morning in the wake of the Paris attacks. Markets are pricing in an increased change of supply disruption.
These three stocks have fallen by between 47% and 60% over the last year. If the oil market does start to stabilise in 2016, as many analysts expect it to, then now could be a good time to buy.
Shares in North Sea firm Ithaca are now nearly 60% above their 52-week low of 26p, but I think this company remains one of the better choices for an oil recovery play.
Ithaca generated adjusted earnings of $98m and cash flow from on-going operations of $217m during the first nine months of the year. This compares well with last year, when cash flow for the first nine months of the year was $128m.
Ithaca is benefiting from a strong hedging strategy. The firms operating costs per barrel of oil equivalent (boe) have also fallen sharply to $33 this year, down by 40% from last year. Ithaca expects costs to fall to $25/boe when production starts from its Stella field in Q2 2016.
Its worth remembering that Ithacas recent $66m placing was carried out at 53p per share 29% above the current share price. This means that private investors can currently buy into Ithaca for much less than the placing price.
Stella is likely to be the key to Ithacas success, in my view. If everything goes to plan from now on and there are no further cost overruns or delays, Ithaca could be a smart buy.
Exploration firms operating in the Falklands have had a poor run of luck recently. This makes Rockhoppers decision to diversify by buying Mediterranean Oil & Gas last year look wise.
Rockhopper said today that gas production has started at the Civita field, in the Abruzzo region of Italy. Combined with production from the firms offshore Guendalina gas field, Rockhopper now has gas production of around 700 boe per day, which is expected to provide revenue of around $9m in 2016.
Although this wont make anyone rich, it should cover many of the firms overheads and help preserve Rockhoppers $160m cash balance.
As the only Falkland explorer with a potentially commercial oil discovery, Rockhopper could be worth a closer look, in my opinion.
Tullow scored some brownie points with investors recently when the firms lenders recently agreed to leave Tullows lending facility, which is based on the value of its reserves, unchanged.
Many other companies have seen their reserve-based lending facilities reduced in the light of lower oil prices. Tullows success in avoiding this fate suggests the companys lenders are confident that the firms TEN project will be successful and generate significant enough new cash flow to repay its debt.
I agree with this view. At less than 200p per share, I wonder if Tullow is a buy. My only concern is that repaying Tullows $4.2bn net debt will place a lot of pressure on the firms profits over the next few years, and may limit shareholder returns.
Indeed, while investing in battered commodity stocks could generate big profits, it’s a high-risk strategy. The market could fall further.
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Roland Head 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.