The present time is a highly uncertain one for energy companies. The lower oil price has pushed revenue and profitability forecasts lower and caused the valuations of a number of resources companies to come under severe pressure. And, as a result, investor sentiment has declined considerably and left the sector in a much more unstable and challenging position than it was at this time last year.
However, for long term investors on the hunt for bargains, now could be a great time to buy. Certainly, volatility, uncertainty and the potential for losses are very real threats, but the potential for vast gains remains highly appealing. Could these three resources plays deliver share price growth over the medium to long term?
Xcite Energys (LSE: XEL) share price has tumbled by 50% in the last year, as a lower oil price has caused investor sentiment to weaken. And, looking ahead, there seem to be key challenges facing the company that could hold its share price back. Chief among them is financing, with the company likely to require significant refinancing over the medium term in order to begin production at its main asset, the Bentley field. This could cause its share price to come under pressure even though it is a highly appealing asset that makes considerable economic sense even with oil at far less than $100 per barrel.
The problem for investors, though, is that since Xcite has no real revenue at the present time, it is largely dependent upon news flow. This is likely to make its shares very volatile and, while it has a bright long term future, now may not be the perfect time to buy when there is great value on offer elsewhere in the sector.
One of Xcite Energys partners, Enquest (LSE: ENQ), has also seen its share price fall heavily in the last year, with it being down 61%. Looking ahead, its shares could come under further pressure despite Enquest being a relatively high quality producer with an appealing asset base, since it is expected to post disappointing profit figures over the next two years.
For example, in the current year, Enquest is forecast to see its earnings per share fall from around 11.9p last year, to just 0.3p. Thats a staggering fall and is due to a lower oil price, while next year things are due to get even worse with a loss per share being pencilled in of 0.7p. As such, and while Enquests share price has bounced by 28% in the last three months, now does not appear to be the right time to buy a slice of it.
As with Xcite Energy and Enquest, Ophir Energy (LSE: OPHR) has seen its valuation shrink massively over the last year, being down 49% during the period. And, looking ahead, further disappointment could be on the horizon, since Ophir is expected to make a loss in both of the next two years and, with a key financial backer, Kulczyk Entities, having sold its stake, it may find it future financing requirements harder to fulfil.
Certainly, Ophir has a generous cash balance of over 670m, but with there being a number of highly profitable oil producers with strong asset bases and bright futures trading at low valuations, it does not hold a vast amount of relative appeal at the present time.
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