Soco Could Go

Vietnam-focused Soco has endured a tricky year, its share price falling 50% in that time. Last time I checked it out, in November, it had just published a disappointing production update showing that its H5 well producing just 9,000 barrels of oil equivalent per day (boepd), against initial hopes of as much as 12,000. That knocked 16% off its share price, although it was hardly panic stations, with solid forecast revenues of around £140m for 2016 and pre-tax profits holding steady at around £38m. 

A new trading and operations update has delivered more positive news, with a year-end cash balance of $104m with no debt, despite a generous $51m dividend splurge last June, and capex totalling $82m. Net production (including its TGT field) averaged 12,000 boepd realised at an average price of $54 a barrel, bringing in $215m of revenues. Better still, cash operating costs were under $10 per barrel.

Story Time

Chief executive Ed Story had a good tale to tell, with “low cost production, no debt and our disciplined approach to capital allocation”, which he claimed puts Soco is in a good position to weather a prolonged industry downturn. Markets broadly welcomed the news, with its share price up nearly 7% in the last week, although today’s 136p it is still well below the stock’s 52-week high of 134p.

Management is talking of being “frugal”, which is sensible right now, and the next dividend payout is unlikely to be as generous as the last one, but forecast earnings per share growth of 54% this year looks promising, and Soco’s low production costs give it a cushion in case oil falls further.

Falcon May Fly

Falcon Oil & Gas is down 26% over six months but in November I said it was more promising than most oil explorers and it still looks that way today. I was encouraged by its drilling success in the Beetaloo Basin, Australia, with positive early results from its nine-well programme indicating favourable shale properties and excellent gas shows. Falcon is also debt-free, with $9.8m in cash. Experienced partners Origin and Sasol supply much-needed expertise in unconventional shale and gas to liquids

High-quality assets and a fully funded drilling programme do not guarantee success in today’s world, especially with analysts warning that natural gas is next to collapse. Falcon management is also being frugal, with expenses falling by 41% in the nine months to September 30, at US$1.8m. Broker FinnCap just named it a buy with a target price of 23p, which suggests a potential upside of 460% on today’s 5p.

Both Soco and Falcon look tempting for those for those who are bullish on the oil price recovery, especially since both seem equipped to survive if the price stays lower for longer. There is a strong bull case to be made, but only for speculative investors.

The post The Bull Case For Soco International plc & Falcon Oil And Gas Limited appeared first on The Twelfth Magpie.

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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.

Last week’s news from Falcon Oil & Gas (LSE: FOG) was brilliant for the company. Falcon announced that partners had drilled another successful well in the Beetaloo Basin, Australia. On the back of another successful well, the shares rose up more than 30%; following this, the third well of the campaign is being brought forward by 12 months (Falcon is in the middle of a nine-well campaign over three years). The company has no expenditure and lots of exposure to drilling and, due to this, is one of my top picks in the sector. Recently the shares have been trading at 52-week lows, but any more success in the drilling campaign should cause the shares to re-rate. 

Premier Oil (LSE: PMO) is still struggling after taking large write-downs on various assets. Subsequently, the shares are performing in the bottom half of its peer group. The company will make another loss this year, and I don’t think the situation will get better any time soon.  Operating primarily out of the North Sea is also a negative in my view, due to the high costs involved. The balance sheet doesn’t look good, and although debt covenants have been moved back, the company needs oil to gain a few dollars in order to make a return.

Enquest (LSE: ENQ) is very similar to Premier Oil and needs an oil price of above $60 to really make a profit. Revenues are 12% down in H1 2015 even though the company increased production by 17% to 29,665 boepd. The company has some exiting developments to come on-stream in the next few years, but it looks as if Enquest needs the oil price to rise quite substantially. The balance sheet isn’t very healthy with a net debt of $1.28bn, but it can afford to wait it out and won’t be in any danger of breaching debt covenants. Production is forecast to reach between 33,000-36,000 by year-end with Alma/Galia coming online, and this should help the company keep revenues up. 

Investing in the oil & gas sector is risky at the moment but the reward is huge. In the case of Falcon Oil & Gas, I think it offers one of the best investment cases in the sector. The company has no large capital expenditure for years, and has exposure to the high-impact drilling campaign of which the first two of nine wells have been successful. Even after the share price rose last week on the back of good well results, I believe Falcon is a good bet for the future and should outperform. 

The post Is Falcon Oil and Gas Limited A Better Buy Than Premier Oil PLC & Enquest Plc? appeared first on The Twelfth Magpie.

More reading

• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

Jack Dingwall 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.