The energyprice slump has been bad news for oil majors and explorers alike, drilling a hole through all their planning assumptions.Smaller explorers have been hit particularly hard, as confidence and investment money dries up. Some explorers have been hit harder than others.
Hawkish Outlook
US-focused oil development and production companyNighthawk Energy (LSE: HAWK)was always a risky play, whatever the oil price. Over the last year its share price has absolutely collapsed from 7.50p to todays rock-bottom purchase price of a meagre1.70p. Thispenny stock now readslike a penny dreadful.
It all looked so much more optimistic in December last year, when management issued an upbeat production updatefollowing increased production in newly drilled wells. It claimed that with operating margins as high as 60% to 70% it could earn a reasonable rate of return on its drilling capital even if oil fellhit$50 per barrel. Today, it is $45 a barrel. But that isnt the main cause of its current woes.
Driller Killer
Nighthawk announced in August that it was running a five-well drilling programme for late 2015, and the results so far have been mixed. Results from its Arikaree andCrested Butte wells remainpromising but management hadto plug and abandon its Monarchwell, after sinking around$550,000 into the project. November broughtmore bad news, with theHappy Jack 7-10 well alsoplugged and abandoned, and last Thursday management announced that the Northstar 1-14 would suffer the same fate. There is no further drilling planned for this year.
Nighthawk recentlybought itself timeby raising$10mthrougha zero coupon unsecured convertible loan note, which should fund its 2016 drilling programme. But investors tempted by todays rock bottom share price face a nerve wracking 2016 as they awaitdrilling success and pricier oil. Thatis a double dare I want nothing to do with.
Soco, So Good
Things arent quite so desperate at Vietnam-focusedSoco International (LSE: SIA), but theoutlook is still tough.At todays 135p, the share price is well down from its 52-week high of 317p. Again, cheapoil is the major problem, but a disappointing recent production update in mid-November dealta further blow to sentiment.Its H5 well gladdenedinvestors when it started pumping early this year but latest figures show that production is a saddening9,000 barrels of oil equivalent per day (boepd), against initial expectations of 11-12,000.
The subsequent share price slump has listed its yield to a hefty 11.33%, but I wouldnt buy this stock for the dividend, as further oil price weakness or drilling disappointments will put it under increased pressure. Only buy if you aregambling on a recovery. Socolooks less risky than Nighthawk, with forecast revenues of around 140m next year, only slightly down on 2015, and pre-tax profits holding steady at around 38m. Predictions like these make me edgy because they are subject to so many variables. There is big money to be made from the oil rebound, but equally big risks. Soco looks safer than Nighthawk, but is still too risky for me.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.