However, there’s still concern regarding its near-term prospects, since Xcite Energy is due to make bond repayments in June of this year. While it has apparently been searching for a partner for the potentially lucrative Bentley field in the North Sea, it’s still considering various fundraising options. As such, and while the Bentley field clearly has upbeat long-term prospects, it seems prudent to await further information regarding the company’s near-term financial outlook before buying a slice of it.

Long-term potential

Also releasing news today was UK Oil & Gas (LSE: UKOG), with the final Horse Hill Portland test flowing at a stable dry oil rate of 323 barrels of oil per day (bopd). This is double the previously reported rate. When taken into account it means the final aggregate stable dry oil flow rate from the two Kimmeridge limestones, plus the overlying Portland sandstone, stands at 1688 bopd, which is higher than the previous flow rate of 1528 bopd.

Given these impressive results, Nutech will investigate a possible upgrade to the oil in place calculated within all three test zones, with engineering studies to examine possible flow rates from a horizontal well. And with UKOG owning a 20% stake in the project, it seems to be in a strong position to benefit from the asset’s potential over the long run. The company’s chairman said today that the flow test results have demonstrated North Sea-like oil rates from an onshore well.

Clearly UKOG remains a relatively high-risk play that’s highly dependent on not only near-term news flow but also the price of oil. As such, it may only be of interest to less risk-averse investors, although it continues to benefit from rising investor sentiment, which has helped to treble its share price in the last year.

Ebb and flow

Meanwhile, Bahamas Petroleum’s (LSE: BPC) share price surged by as much as 25% today before falling to be flat at the time of writing. Today it released results for the 2015 financial year, reporting an operating loss of $4.8m versus $4.7m last year. However, the company remains singularly focused on commencing drilling activities by April 2017. And with the Bahamian Senate having passed the Petroleum Bill and Sovereign Wealth Fund Bill, it seems to have improved prospects of attracting a high quality farm-in partner.

Furthermore, Bahamas Petroleum is seeking to cut costs and on this front it has been able to reduce operating cash outflows by 8% and slash employee costs by 10% versus the prior year. As such, its share price could continue to rise after its 33% gain of the last year, although it remains a very high-risk play, which may be highly dependent on positive news flow in the short-to-medium term.

The trigger for these gains was news that a new Petroleum Act has now been drafted in The Bahamas, and has been placed before parliament for final approval. This long-awaited new act will define the legal and tax framework for oil explorers operating in The Bahamas.

When will we know more?

The company didn’t specify a timescale, but said chief executive Simon Potter said that “After a short recess, following a busy parliamentary agenda, the process will be finalised.”

I suspect that it could be a number of months before we know much more, but this is an important step forward for the firm, which is currently planning its first exploration well in the islands.

Cutting costs before farm-out

For a small-cap explorer, Bahamas Petroleum is relatively well funded, with cash reserves of $12.4m.

However, that won’t be enough to fund the drilling of its first offshore exploration well, and the company is actively looking for a funding partner for the deal, in order to try and unlock the potential of its exploration licences.

It’s very unlikely that any potential farm-out partner will agree a deal before the Petroleum Act is finalised, but the firm has been taking a proactive approach to prepare for this step, by developing a revised plan that should cut the anticipated costs of its first well in half — from $120m, to a more affordable target cost of $60m.

To show their commitment to delivering a funding deal, Bahama Petroleum’s board has agreed to convert 20% of their salaries into a share-based deal, which is dependent on a farm-out deal being achieved.

What next?

Bahama Petroleum’s current licences stipulate that a well must be drilled by April 2015. Clearly this is impossible, so following the adoption of the new Petroleum Act, the company expects to receive a licence renewal with a 12-month drilling deadline.

However, the contents of the new Act are not yet known by investors, and it’s possible that the financial terms may not be as generous as hoped for, which could make it more difficult to find a farm-out partner on favourable terms.

These risks mean that exploration plays such as Bahamas Petroleum should only usually account for a small part of your portfolio, as there’s a very real risk of a 100% loss if things don’t go to plan.