Oil & gas minnowsNighthawk Energy(LSE: HAWK) andIGAS Energy(LSE: IGAS) have both jumped this morning, following positive news flow. Indeed, Nighthawk has issued an upbeat production update, while IGAS has benefited from the news that chemicals giant,Ineosisplanning to invest up to 640m in shale gas exploration and production across the UK.
Nighthawk jumped by as much as 16% in early trade this morning, after the company issued its monthly production update.
The company said daily average gross production in October was 1,886 barrels of oil a day and gross production is currently in the region of 2,500 to 2,600 bbl/d. Whats more, the company announced that is currently in the process ofcapturing more reserves from existing wells by reconfiguring them and hadidentified 17 new drilling locationswithin theSnow King discovery area.
Moreover, Nighthawks management sought to reassure investors following the recent oil price slump. According to management:
Recent declining oil prices are concerning to many US-based operators such as Nighthawk. However, with our operating margins as high as 60% to 70%, we can earn a reasonable rate of return on our drilling capital at realized oil prices as low as $50 per barrel
Great news for existing holders.
Todays news from Nighthawk comes after a rough couple of months for the companys share price. Over the past five months, Nighthawks shares have fallen by around 50%. However, thanks to these declines, Nighthawks shares are now attractively priced.
In particular, for thesix months ended 30 June 2014 the company reported earnings per share of 0.39p. Based on these figures, with production increasing, its reasonable to assume that the company will be able to report full-year 2014 earnings per share of 0.78p. These figures put the company on a forward P/E of 8.7 at present levels.
On the other hand, IGAS looks expensive at present levels and its not clear how todays news which isgood for the UK fracking industry as a whole will affect the company.
Nevertheless, IGAS began drilling itsthird UK shale gas well at Ellesmere Port, Cheshire only a few days ago, as part of the companys plan tovalidate a geological model allowing itto plan for future developmentactivities.This should prove to be a future catalyst.
But unless the company makes a huge find soon, it could be some time before IGASs shares look to be good value for money. Indeed, at present levels the company is trading at a 2015 forward P/E of 560 and 2016 P/E of 46. As IGAS is trading at such a lofty valuation, if anything goes wrong, the companys share price could quickly fall back to earth.
So, for the time being, IGAS’sfuture is uncertain and the onething to remember is that oil minnows can make you rich but they can also make you poor.
That’s why the best investors build a portfolio with a combination of both risky oil companies and reliable dividend-paying stocks, reducing risk and allowing you to sleep soundly at night.
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Rupert Hargreavesowns shares of Nighthawk Energy Plc. 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.