LGO Energy (LSE: LGO), Xcite Energy(LSE: XEL) and Ithaca Energy(LSE: IAE) are really troubled: but do they offer a once-in-a-lifetime opportunity?Heres all you need to know about theseoil and gas companies.
Tough Times AtIthaca
You dont have to be a financial guru to understand how bad the situation is with this oil and gas producer.Its balance sheet carries a huge amount of debt, while its shares have plunged 62% in the last month of trading. Theres more to it: its benchmark project in the North Sea is going to cost more than budgeted for, as problems recently emerged with production.Lower oil prices are killing the investment case.
Its enterprise value is more than five times the value of its equity, which means that Ithacas net debt position is simply unsustainable, and that is clear when you try to figure out how much cash the company may burn with Brent below $50 per barrel.Its no surprise that capital expenditure was recently cut by 60%. That may not be enough, though.2015 net capital expenditure is projected at about 100m, the majority of which will fund its Greater Stella Area project, which may or may not produce oil by the end of 2015.
Xcite Energy &LGO Energy: High Risk, But
Fossil fuel explorer Xcite Energy doesnt generate revenues and cash flows, and doesnt have too much cash on the balance sheet, either. Most of its assets are intangibles, which are worth very little in this market.
It has some debts, though, and significant capital expenditure needs, so strategic partners will be vital to its success.ItsBentleyoil field is onethe largest undeveloped fields in the North Sea: the big question now is how Xcite willmonetise the asset. In my view, the most obvious outcome remains a takeover at a small or no premium. Development risk is real and additionalproject delays should not be ruled out.
Statoil is the most likely buyer for Xcite, whose shares were up 10% on Wednesday in early trade based on bullish expectations for the Budget yet they are down 60% in the last 12 months and more than 10% year to date.
Elsewhere,LGO Energy has lost morethan 40% of value in 2015: it takes a huge leap of faith to invest in LGO, in my view, but this could be a high-risk/high-reward investment!
In fact,its Goudron field in Trinidad is outperforming, based on expectations. The explorer announced on Tuesday that its subsidiary Goudron E&P Ltd had drawn down about $12m out of a $25m pre-paid debt facility.
This round of funding backs the development drilling programme at the Goudron field, andshows that LGO has the full support of its lenders, which is very important these days.
We are now entering one of the most exciting growth phases of the Company and are delighted that this finance facility is now in place and that our development program at Goudron will be carried out through a long term funding arrangement with a first class lending institution,chief executive Neil Ritson said.As our business grows in Trinidad we look forward to the relationship with BNP Paribas growing to match our needs.
Of course, there’s a chance thatLGO,Xcite andIthaca will continue to plummet, but if you are invested — or if you are considering an investment — in any of these three oil companies, any possible oil losses in your portfolio could be offset by terrific gains from several shares that could reward you with a 50% pre-tax gainannually.
Several top growth candidates areincluded inour top ten “multi baggers”, and many of themhave already recorded a +30% performance year to date; theycould easily replace small oil producers in your portfolio, for a much lower level of risk!
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