Shares in Xcite Energy (LSE: XEL) and BowLeven (LSE: BLVN) are both in the red today after the two companies reported disappointing results. In fact, their share prices have slumped by 5% and 6% respectively today and, over the last six months, have declined by 54% and 14% respectively. Clearly, this is a disappointing result for investors in the two companies but, looking ahead, which of the two companies has the most potential to deliver significant share price gains?
Loss-Making Entities
Today’s full year results from Xcite Energy showed that it swung from a profit of £9.5m in 2013 to a loss of £5m in 2014, as a failure to repeat the one-off revenue from 2013 impacted on the company’s bottom line. In fact, Xcite Energy also recorded a substantial foreign exchange loss on bonds which made its results seem all the more disappointing.
However, Xcite Energy is making encouraging progress with the Bentley development project and, while further financing appears likely in order to bring the field into production, Xcite Energy’s cash balance of £32.5m should provide investors in the company with a degree of confidence regarding its turnaround potential.
Meanwhile, BowLeven saw its loss widen in the first half of the current year after it recorded a significant impairment charge. In fact, the impairment charge was a whopping $76m and reflects new commodity price and planning expectations for the Etinde development project in Cameroon. As such, the company’s first half pretax loss increased from $6.6m to $81m.
Despite this, BowLeven has a considerable cash balance of $155m which has been built up as a result of the sale of part of its stake in the Etinde project earlier this year. As such, it has considerable financial firepower through which to participate in four exploration and appraisal wells over the next eighteen months, with it also having the financing to continue drilling at the Etinde project, too.
Looking Ahead
Clearly, both companies are experiencing a challenging period at present, with investor sentiment being hurt by lower energy prices and their progress being hampered somewhat by the uncertainty surrounding the wider sector. As such, both companies remain relatively high risk and are likely to see their share prices continue to be volatile over the short to medium term. And, with neither company having any revenue at present, their share prices are likely to be highly dependent upon news flow, which is difficult to predict.
However, when it comes to longer-term prospects, BowLeven appears to offer the most potential for investors. That’s because it is relatively well financed and has sufficient capital to undertake its major plans over the next couple of years. This could prove crucial – especially if energy prices do weaken further. And, while Xcite Energy could prove to be a sound long term investment, its financial position does not appear to be as strong as that of BowLeven, which makes the latter, rather than the former, the better buy right now.
