That Petrofac Emotion

As far as oil sector stocks go, Petrofac (LSE: PFC) has had a decent year. Its share price is down just 6% over the last 12 months, a relatively solid turn in this blighted sector. It has been shielded by its success in winning new business, securing an extra £6bn of projects and taking the group’s backlog to a record $20.9bn. This includes November’s contract win to build a sulphur recovery plant for Saudi Armco.

This doesn’t mean Petrofac can withstand cheap oil forever, especially given major investment in flagship projects, such as its billion dollar offshore installation barge. With revenues forecast to top £5.07bn next year, up from £4.54 in 2015, the future looks pretty bright, especially given the cost-cutting and project scrapping across the oil and gas sector. Earnings per share look set to soar a massive 177% next year, as pre-tax profits rise from £150m to £391m. Imagine what a rise in the oil price would do.

It would certainly turbo-charge the share price. Despite its impressive recent performance, Petrofac trades at an affordable-looking seven times earnings. Its yield is a rewarding 5.5% and unlike other dividends in the oil sector, it looks pretty safe, comfortably covered 2.6 times.

Time To Swoop?

Last time I looked at Falcon Oil & Gas (LSE: FOG) I thought it was more promising than most oil explorers after its recent drilling success in the Beetaloo Basin, Australia. Its nine-well programme runs until 2018 and last week it reported encouraging preliminary results from the drilling of the first three Australian wells, which indicated “favourable shale properties with excellent gas shows indicating the likelihood of high levels of gas saturations”.

Falcon is debt-free, with $9.8m in cash. Chief executive Philip O’Quigley has also highlighted the company’s “strong cash position, fully funded drilling programme and high quality assets”, which bodes well for 2016. The oil industry may be in a fog, but Falcon’s future is clearer than most. That said, the share price is down 32% in the last six months, so plenty of risks remain.

So Xcited

This has been a tough year for AIM-listed oil appraisal and development company Xcite Energy (LSE: XEL). At today’s 18p, it is well below its 52-week high of 44p. Its flagship Bentley heavy oil field in the Northern North Sea looks exciting on paper, with “proved plus probable reserves” worth $2.3bn. In a retrenching industry, securing development partners and financing to develop the field is proving challenging. The only upside is that falling industry costs should reduce its outlay if it can find the funds to drive the project.

Q3 results showed a net loss of $0.3m to 30 September, but that is down from $4.3m in Q3 last year. Its cash balance is now $27.9m, slipping from $34m at the end of June, so it still has some breathing space. What it needs is a partner, but suitors are in short supply in today’s market. Xcite says it has completed technical and economic due diligence with a potential partner, which has now moved towards commercial discussions, but nothing has been firmed up yet. Xcite would be risky at the best of times, and these certainly aren’t the best of times.

The post Do Petrofac Limited, Xcite Energy Limited Or Falcon Oil And Gas Limited Offer The Most Energetic Prospects Today? appeared first on The Twelfth Magpie.

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Harvey Jones has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Petrofac. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Over the last year OPEC, or rather swing producer Saudi Arabia, has collapsed the oil price to $45 to punish the US for threatening to become energy self-sufficient thanks to shale. This risky strategy is hurting fellow OPEC members, slashing their annual income from around $1 trillion a year to $550 billion, and even Saudi itself, which has been cutting state spending and issuing bonds to cover the lost income.

Black Gold

Saudi will come under massive pressure to shift its supply stance at the next OPEC meeting in December. If it caves into external – and internal – pressure smaller oil explorers will breathe a sigh of relief. As will the investors who hold their beleaguered stocks.

Pricier oil can’t come too soon for North Sea heavy oil appraisal and development company Xcite Energy (LSE: XEL). Trading at 20p, it is well below its year-high of 54.50p. Few are quibbling about the quality of the assets in its flagship Bentley oilfield, or the quantity, for that matter. The problem is raising the investment it needs given frazzled oil investor nerves.

Future Shock

Xcite reckons it can still pump up black gold with projected costs of $35 a barrel, but the margins are becoming thinner every time oil falls. If OPEC does gift the industry a higher oil price in December, Xcite might find it easier to fund its planned mobile offshore production unit, floating storage and offloading vessel. This week’s tie-up with Azinor Catalyst will help to de-risk the project as its new partner will take on many of the costs, but production and profits are still years away. Where will oil be then?

Falcon Oil & Gas (LSE: FOG) looks more promising than most oil explorers following its recent drilling success in the Beetaloo Basin, Australia, where it retains a 30% stake with co-venture partners Origin and Sasol. With no debt and a nine-well programme running until 2018, this looks safer than many in the sector, and an OPEC-fuelled leap in the oil price could lead to a spike in its share price as investor confidence returns. Less risky than most, but still risky.

Premier League?

Investors in Premier Oil (LSE: PMO) will grab any gift from OPEC with both hands, as the share price continues to tank, down 13% in the last week alone. Like every oil company, it is slashing capex and production investment to stay afloat, although the hit to production may be mild as Solan development is now complete and Premier has limited committed expenditure beyond its ongoing Catcher project.

As chief executive Tony Durrant pointed out this week, Premier also benefits from stable production and valuable hedging contracts. Barclays reckons it can “navigate a prolonged sector downturn” despite its growing debt levels, but says there are more compelling investment opportunities elsewhere. OPEC could change the market’s view of Premier in a moment. For that we must wait until its meeting in Vienna, Austria, which begins on 4 December. The world will be watching.

The post Will OPEC Hand An Early Xmas Present To Xcite Energy Limited, Falcon Oil And Gas Limited & Premier Oil PLC? appeared first on The Twelfth Magpie.

More reading

• Why Barclays shares could have a huge second half of 2026
• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Harvey Jones 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.