During times when the oil price is depressed, most companies cut back on drilling and production growth stalls. However, there are companies that buck the trend: I believe the businesses discussed below offer good returns through exploration and development activity.
Amerisur Resources
Amerisur Resources (LSE: AMER) is only a few months away from company-changing news. By next year the company will have a new pipeline that will transport crude from its flagship Platanillo field, which will transform the cashflow of the company. Currently, Amerisur trucks oil to market from the field, which is slow and expensive. The pipeline will increase production to close to 10,000 bopd from the current 4,500 bopd. Cost of extraction will also decrease drastically, and the company will be making good profit at this low oil price. This low-cost production will underpin the business and ensure its profitability. The balance sheet is also very strong, with over $50m in cash and no debt, so the company is in no need of a dilutive equity placing.
Rockhopper Exploration
Rockhopper Exploration (LSE: RKH) is one company that’s known to most investors due to its prize Sea Lion field in the Falklands. Although recent news from the region hasn’t been positive, Rockhopper continues to have the best acreage in the region. The Mediterranean business is a very attractive area of the company too, and this week’s news has been very interesting. The company successfully sidetracked a well that will now provide $7m revenue a year. The balance sheet remains strong and, with any luck, Sea Lion will gain final investment approval and grow into a sizeable development. The company is growing its presence in the Mediterranean, and I believe this will turn out to be invaluable considering the Sea Lion development in the Falklands is still in the balance. This year has been very good for Rockhopper, with two good wells in the Falklands and more drilling to come. This makes the company one to watch in the next few months.
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Amerisur and Rockhopper aren’t the only oil companies that are performing well operationally. Pantheon Resources (LSE: PANR) has had two successful wells in the last month, and the share price has flown. This is on the back of a 1,000 boepd production rate at the VOBM#1 well — if a result like this comes from the second well too (the company is testing at the moment) then shares should rise further. Serica Energy (LSE: SQZ) is another company that has increased production recently and offers very good value. The market cap is only £26m and production rates are 4,100 boepd, which just illustrates the value. The cash balance was $15.5m as of 28th September, which again shows how undervalued the company is.
All the companies mentioned above have assets that are performing well and are increasing production, even in this depressed oil sector. For investors in the sector, these companies should offer good returns over the next year.
