Just how low can oil prices get? Well, Brent Crude has now slipped below $60 a barrel for the first time since 2009, and it’s squeezing the pips out of some of our already-pressured oil explorers and producers.
Tullow
Look at Tullow Oil (LSE: TLW), whose shares plunged to a new 52-week low of 352.8p today to take them down 58% over the past 12 months. And that comes despite last month’s update that told us Tullow expects to be producing “over 100,000 bpd of high quality, high margin oil” by 2017 in West Africa.
The company did say that low prices will force it to review its capital expenditure and significantly reduce its exploration spend. Tullow is forecast to record a loss per share this year, though the extent will not yet include the latest oil slump.
Premier
Something similar has happened to Premier Oil (LSE: PMO) which also sank to a new low today, of 146.9p for a 12-month loss of 49%. And that’s a company expected to see an earnings per share (EPS) gain of 40% this year, to put the shares on a P/E of only 4. EPS is predicted to fall back again next year, but it would only raise the P/E to 6.
In its November update Premier told us it will go ahead with new projects “if they are robust at our long term oil price which is currently $85/bbl“, so $60 a barrel is going to give those plans a kick in the teeth.
SOCO
Our third, SOCO International (LSE: SIA), has got off relatively lightly with a 33% share price fall in 12 months, to 260p. And unlike the other two, it’s up from the 52-week low of 234.8p that it scraped on 12 December.
SOCO’s fundamentals look pretty decent, with a 54% forecast rise in EPS putting the shares on a P/E multiple of just over 8. SOCO is in a pretty good cash position right now, with approximately $177m in cash and liquid investments on the books as at 12 November — and it paid out 22p per share as a special dividend on 10 October.
Time to buy?
Consensus forecasts are probably all a bit too optimistic right now, as analysts’ recommendations will always be lagging the latest oil price, so real P/E valuations will be less attractive than they seem. Still, the downturn we’re in now could prove to be an investment opportunity, especially for the cash-rich companies in the sector.