In today’s article, I’ll take a look at three oil stocks that are on the move today. Is now the right time to invest in Amerisur Resources (LSE: AMER), Rockhopper Exploration (LSE: RKH) or Petroceltic International (LSE: PCI)?
Amerisur Resources
Shares in South America-focused oil producer Amerisur Resources rose by as much as 20% this morning. The trigger for the gains was news that work has begun on an under-river pipeline that will connect Amerisur’s Platanillo field in Colombia with an oil pipeline in neighbouring Ecuador.
The new pipeline connector is expected to take around 35 days to complete. Oil transportation could start in March. According to the firm, the new pipeline connection should cut operating costs for the Platanillo field from $27 per barrel to just $17 per barrel.
Given that production is currently around 5,000 barrels of oil per day, this equates to an annual saving of more than $18m. The new connector also paves the way for increased production in the future. It’s a big win for Amerisur, which I believe could be a good long-term buy at current levels.
Petroceltic International
Shares in Petroceltic International popped higher when markets opened this morning, following news that the firm has sold its assets in Egypt for $9.5m to partner Edison International.
The shares have since pulled back a little from this morning’s highs — and with good reason, I’m afraid.
Petroceltic owes $217.8m to its lenders, on which repayments were due at the end of last year. The firm doesn’t have the cash to meet these requirements and is currently only able to continue trading because its lenders have agreed to provide some breathing room while Petroceltic tries to find a buyer.
It’s thought that Petroceltic’s largest shareholder, hedge fund Worldview, might make an offer. The problem for shareholders is that since Petroceltic is in default on its debts, all Worldview needs to do to take control of the firm’s assets is to agree a deal with Petroceltic’s lenders. Shareholders would probably get almost nothing in such a scenario.
Today’s news makes no difference to this situation, and Petroceltic is a strong sell, in my opinion.
Rockhopper Exploration
Oil firms with high levels of debt and no cash flow are a risky buy in today’s market. By contrast, Amerisur has net cash and revenues, and is attractive. I also think that Rockhopper could prove to be a good investment.
The Falkland-focused firm expects to reach the end of 2016 with net cash of $70 to $80m. Following the recent completion of its merger with Falkland Oil And Gas, Rockhopper has 2C contingent resources of more than 250m barrels in the North Falkland Basin. Contingent resources are oil or gas resources that definitely exist, but haven’t yet been shown to be commercially viable.
Ignoring net cash, Rockhopper’s current £123m market capitalisation values this oil at around $0.70 per barrel. If the Sea Lion development goes ahead and these resources are converted to commercial reserves, I’d expect Rockhopper’s valuation to be several times greater than it is now.
Rockhopper could be a good stock to buy and forget about for a few years. The oil market will eventually recover, and Rockhopper is well positioned to ride out the storm.