Brent Crude has fallen by 8% since the start of July and is currently trading at just $58 per barrel. Last week, the International Energy Agency warned that the oil market remains “massively oversupplied”.
Now could be a good time to buy oil shares. In this article, I’ll focus on four companies I believe look cheap at today’s prices.
Genel Energy
Shares in Genel Energy (LSE: GENL) slipped lower this morning. The firm said that payment difficulties for Kurdish oil exports mean that trade receivables rose from $230m to $378m during the first half of 2015, despite lower oil prices.
Genel also confirmed that it would defy corporate governance norms by shifting chief executive Tony Hayward into the chairman’s seat.
Of course, Mr Hayward is no ordinary ‘hired gun’ chief executive. He was a co-founder of Genel, which has become one of the largest oil producers in Kurdistan under his guidance.
In today’s update, Genel said that net production is now peaking at more than 100,000 barrels of oil per day (bopd). Guidance of 90-100,000 bopd was confirmed for the full year.
Genel had $470m of cash at the end of June. Mr Hayward is confident that the Kurdish cash will arrive eventually.
I agree. At less than 500p per share, I rate Genel as a strong buy.
Hunting
Shares in oil service technology firm Hunting (LSE: HTG) have fallen by almost 12% since the start of July. The trigger for the slide was the firm’s warning that a sharp decline in US drilling activity means 2015 operating profit is likely to be 50-75% lower than in 2014.
However, the decline in drilling rig activity appears to be levelling off. A closely watched US rig count has risen over the last two weeks.
Hunting has a strong balance sheet and widespread headcount reductions have saved $41m so far this year. Hunting is continuing to invest in new facilities and could be a good long-term buy at current prices, in my view.
Lamprell
Another engineering firm that’s suffering from the oil market decline is Lamprell (LSE: LAM). However, the outlook for the Dubai-based rig builder is brighter than you might expect.
The firm had an order backlog of $1.2bn at the end of 2014, a 33% increase on one year earlier. At the mid-way point in the year, Lamprell has confirmed 2015 guidance, putting the firm’s shares on a 2015 forecast P/E of 13.6, falling to less than 13 in 2016.
Lamprell’s finances are strong following its refinancing. A strong order book and newly-updated facilities bode well for the future.
I recently added Lamprell to my own portfolio and rate the firm as a buy.
Madagascar Oil
Small cap exploration and production firm Madagascar Oil (LSE: MOIL) has been struggling for years to develop its Tsimiroro field in Madagascar, which has contingent resources of 1.7bn barrels.
Things finally seem to be falling into place. The firm was awarded a 25-year field development licence in April and has a new chief executive, 110,000 barrels of oil ready to sell and sufficient cash to meet near-term requirements.
Further funding will be required, which may explain why Madagascar’s shares remain 50% below last year’s peak. This project should remain profitable at current oil prices and I believe patient investors could see further gains.