Investing in oil explorers is risky at the best of times, never mind when oil prices are at 4-year lows. At around $80 a barrel, it’s helped push down the shares of three previously-promising oilies to new 52-week lows…
Premier Oil
Premier Oil (LSE: PMO) shares have traded as high as 358p during the past 12 months, but on 27 November they crunched to a 52-week low of 214.6p. That’s a fall of 25% over the past 12 months, and 53% since their high point in January 2011.
At Q3 time the company told us that it’s making good progress with its development projects, and that “In 2015, net cash flows will benefit from lower development capital expenditure and a programme of cost reductions“.
Should OPEC manage to get oil prices back up Premier could well rebound, but its operating margins are low and it could be in trouble if prices fall further.
Afren
Premier Oil is looking positively buoyant compared to Afren (LSE: AFR), whose share price plunged 59% to a 52-week low of 57.7p on the same day, and it’s not hard to see why. A scandal surrounding undisclosed and unauthorized payments taken by the CEO, COO, and two other directors led to the dismissal of all four of them in October — the CEO and COO for gross misconduct, with possible legal action against them to try to recover the sums involved.
Then third-quarter results badly missed expectations, and the share price fell further.
A 60% fall in EPS forecast for the full year puts the shares on a lowly P/E of 5.6, but I reckon you’d be very brave to risk buying right now.
Ophir Energy
Our third, Ophir Energy (LSE: OPHR), joined the others in hitting a new low on the 27th too, of 157p — that’s a drop of 52% over 12 months. The failure of two exploratory wells to find any useable hydrocarbons in Tanzania on 21 November certainly didn’t help, and even the announcement of Ophir’s recommended acquisition of Salamander Energy three days later failed to stop the share price slide.
But while oil prices keep the whole sector depressed, low valuations could help cash-rich Ophir to pick up some more bargains like Salamander in an acquisition spree that could set it up well for when things recover.
Which is best?
I’m too risk-averse to invest in oil exploration myself, but if I were to try a small punt it would be on Ophir as it looks the least risky of the three right now.