Sub-$50 oil is starting to hurt even the big oil companies now, with Royal Dutch Shell and BP having to impose cost-cutting measures. BP has even slashed 300 jobs in the North Sea and decided to shelve some plans, as the low oil price makes the relatively expensive development unprofitable.
Commentators have even suggested that BP expects oil to remain at todays low prices for the next two or three years, as Saudi Arabia is keeping the production taps open in a bid to kill off the more expensive oil shale industry. That could have crippling effects on smaller oilies with high costs.
Cairn Energy (LSE: CNE) has other activities to offset it, but its still big in the North Sea. The firms latest update on 13 January did say that Cairn is fully funded to deliver its exploration and appraisal programme, along with the Kraken and Catcher developments which are on track for first oil in 2017, and it has plenty of cash and credit but it made no mention of oil prices.
Cairn seems safe for now, at least. The share price has leveled off of late, but its still down 38% over 12 months to 171p.
Xcite Energy (LSE: XEL) is another company focused on the North Sea, currently developing known resources. At Q3 time in November the firm confirmed it had raised $140m through bond and equity issues, so its cash situation looks reasonable for now. But analysts are forecasting increasing losses per share until at least 2016, and if oil hasnt started to recover by then we could be looking at a scary situation.
Xcites shares are down 68% in the past year, to 33.25p.
Turning to Rockhopper (LSE: RKH), exploring in waters north of the Falkland Islands, we find another that could be seriously damaged by long-term cheap oil.
Costs in the South Atlantic are also high, and discoveries around the Falklands have been considerably poorer than originally hoped back in the days when the region was looked on as a great new hope. Still, Rockhopper is moving further afield too, and in its first-half update told us that it is adopting a phased, lower cost development solution for its Sea Lion field and is revising and derisking some of its commercial arrangements.
But again were looking at losses until at least 2016, and the share price is down 61% over 12 months to 59.8p.
If youre thinking of investing in a smaller oil explorer right now, Id say you need to be sure its one with the financial clout to keep going for at least three more years and into an era of recovering oil prices.
Alternatively, you could avoid oilies and turn to a very simple approach to investing that could help you to long-term financial security
To learn more, get yourself a copy of the Motley Fool’s special 7 Simple Steps For Seeking Serious Wealth report, which shows you how investing in shares has wiped the floor with every other form of investment over the past century and more.
It’s completely FREE, so click here for your personal copy and get started today.
Get FREE Issues of The Motley Fool Collective
Get straightforward advice on whats really happening with the stock markets, direct to your inbox. Help yourself with our FREE email newsletter designed to help you protect and grow your portfolio wealth.