2015 has been a shocker for the oil industry, but it isn’t all desperation. Two of these three stocks appear to have a bright future…
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 ÂŁ6bn 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 ÂŁ5.07bn next year, up from ÂŁ4.54 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 ÂŁ150m to ÂŁ391m. 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.