Oil and gas minnowRange Resources (LSE: RRL) is falling today after the company announced a wider than expected full-year loss. The company reported a loss of $64.8m for the year ended 30 June, compared to a loss of $18.3m for the previous year.
Higher financing costs and a major asset write-off were the reasons given for the widening losses. Financing costs rose from $4m as reported last year, to $21.8m for 2014. Assets written off cost the company $24.3m.
Unfortunately, during the period the Ranges revenue also declined by around 19% as the company restructured its portfolio and sold off a number of non-core assets.
Making progress
However, while todays results are disappointing, Range is moving forward, albeit slowly, and if the company can meet its own self-imposed targets, the shares could be good value at present levels.
Indeed, Range is targeting production from its assets within Trinidad of 1,000 barrels of oil per day by early 2015, which City analysts believe will translate into a pre-tax profit of 6.4m for full-year 2015.
Nevertheless, the company has plenty of work to do before it hits this target and management has acknowledged that the companys recent performance has been disappointing. Still, asset disposals over the past year have streamlined the company, allowing it to build a better understanding of core acreage within Trinidad, where Range has a 100% working interest in the Morne Diablo, South Quarry and Beach Marcelle licenses.
Financing in place
Alongside todays results, Ranges management announced that the company had secured a $15m loan from Lind Asset Management LLC. This loan provides Range with medium-term financing to carry out development plans within Trinidad and supports the companys growth plans. Actually, according to Ranges management this loan will allow the company to accelerate development plans, as the cash will enable the company to improve its rig fleet.
That being said, an additional $15m in debt could only add to Ranges problems if the company fails to meet production targets. Indeed, Ranges financing costs are already constricting the companys growth and additional debt is will increase Ranges hefty interest bill.
What do to?
So, what should you do following todays news? Well, Range has clear objectives for the next year, the company wants to double oil output, reduce capital and operating expenditure to enhance financial returns.
If Range can meet these targets, City forecasts predict that the company will report a pre-tax profit of 6.4m next year. With a current market capitalisation of 56m, this indicates to me that Range looks attractive at current levels, trading at a pre-tax P/E ratio of 8.8. The company trades at P/B ratio of 0.8.
A risky business
Range is set for growth but the company still has a long way to go. One thing to remember is that the oil business can make you rich, but it 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 Hargreaves 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.
