Shares in Ithaca Energy (LSE: IAE) rose by more than 10% this morning, as investors were cheered by the firms 2014 results.
In contrast, investors in Gulf Keystone Petroleum (LSE: GKP) saw the value of their shares fall by more than 10% when trading started, after the Kurdistan firm announced a $40m rescue fundraising to meet short-term commitments.
Is either firm a buy in todays market?
Ithaca shows promise
Ithacas results were quite encouraging, in my view. The firm reported underlying operating cash flow from operations of $181.5m for 2014, down from $241m in 2013.
This is a strong result thats been made possible by cost cutting, and an effective hedging strategy: as long as the price of Brent stays above $10, Ithacas current production operations will breakeven or make a profit.
The only remaining question mark is over the firms ability to bring its Stella project into production on budget, and without further delays.
Ithaca confirmed today that its current debt facilities, which total $1.1bn, should be enough to bring Stella into production. Peak net debt of $850m is expected within the next three months, but in my view, the firm will be dependent on a recovery in the price of oil by 2016, in order to help it repay debt and deliver profits for shareholders.
Overall, I reckon the odds are in favour of Ithaca, which I rate as a speculative buy.
What about Gulf Keystone?
Last nights placing of $40m of new shares at 32p a 20% discount to yesterdays closing price of 40p indicates just how real Gulf Keystones cash crisis is, despite an $86m cash balance.
The firm says that the money will be used to strengthen the Companys financial position in the near term while it continues to look for a longer-term solution that will enable it to refinance or repay its debts.
This means either the sale of some of its assets, or a major refinancing of its $520m debt pile. The firms failure to achieve either of these targets may explain why chairman Simon Murray announced his resignation this morning.
Todays fundraising wont solve the firms problems. At around 35p per share, my view on Gulf Keystone is that potential risks and rewards are currently quite evenly balanced the shares may be a hold, but are not a buy.
Weve already seen how the oil crash has thrown up a number of bargains along with some value traps that could see shareholders left with nothing.
If you want to learn how to identify the potential winners and avoid the risk of a total loss, I’d urge you to take a look at “7 Simple Steps To Seeking Serious Wealth“.
This exclusive Motley Fool report includes details of an easy, 7-step strategy that could help you outperform the market in as little as 20 minutes per month.
To find out more today, download this free, no-obligation report now!
To get started today, click here now.
Roland Head 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.