Will Gulf Keystone Petroleum Limited, Genel Energy PLC and Xcite Energy Limited Survive The Oil Crash?

Will Gulf Keystone Petroleum Limited (LON:GKP), Genel Energy PLC (LON:GENL) and Xcite Energy Limited (LON:XEL) Survive The Oil Crash?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The current oil climate is ruthless and only the best companies with the strongest balance sheets are holding up. Any company with financial vulnerability is under serious pressure, and their share price has been hit hard. These three companies all have weak or deteriorating balance sheets, but good assets. Will this be enough to survive or will they be victims of the oil crash?

A spot of bother

Gulf Keystone (LSE: GKP) was once the darling stock of retail investors around the country. Since then news hasn’t been great and the share price has suffered. Currently the company is in a spot of bother, cash balances are dwindling and the company isn’t receiving full payment for its Shaikan crude. Gulf Keystone has over $550m of bonds that need repaying next year, for a company with around $50m in cash that will be a problem. 

The company is heavily reliant on the Kurdistan Regional Government (KRG) being able to pay Gulf Keystone in full. The KRG has  much more pressing matters to deal with, so you would expect Gulf Keystone to need to refinance all of its bonds sometime in the next year to survive. 

Worrying sign

Genel Energy (LSE: GENL) operates in the same region as Gulf Keystone, but seems to be in a more stable position. Its balance sheet is much stronger, with $455m in cash, but Genel has recently had to write down some reserves at its Taq Taq field. This has slashed reserves and is a worrying sign for the company. 

Genel has stated recently that it are actively looking for value-accretive acquisitions, with Kurdistan being the most likely place for an acquisition to happen. Could Genel be running the rule over Gulf Keystone? Any deal there will likely be with the bondholders, leaving little or nothing for equity holders, similar to the Petroceltic bid-situation. 

Serious pressure

Xcite Energy (LSE: XEL) operates, and 100% owns, the heavy oil Bentley Field on the East Shetland Platform. The future of the company is very simple — it must farm out or find funding for the development of Bentley, or the game is up. The balance sheet is dire, cash balances are $27m and the company must repay $139m of bonds in June 2016. This means the company is under serious pressure to get a deal done by June, but in this economic environment getting a deal done for a heavy oil field in the North Sea is close to impossible. 

Any potential acquirer could simply wait unti  June and then do a deal with the bondholders to acquire the company for pennies. A recent rally in Xcite’s share price was a good point to sell as many believe the shares are worthless unless a big deal can be pulled off. 

These three companies are all in tough situation,s but if any of them manage to pull it off then equity holders could see massive returns. Oil and gas in 2016 is a high-risk game, especially in distressed companies but, as always, with high risk comes huge potential. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jack Dingwall has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

After it crashed 25%, should I buy this former stock market darling in my Stocks and Shares ISA?

Harvey Jones has a big hole in his Stocks and Shares ISA that he is keen to fill. Should he…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

How’s the dividend forecast looking for Legal & General shares in 2025 and beyond?

As a shareholder, I like to keep track of the potential dividend returns I could make from my Legal &…

Read more »

artificial intelligence investing algorithms
Investing Articles

Could buying this stock with a $7bn market cap be like investing in Nvidia in 2010?

Where might the next Nvidia-type stock be lurking in today's market? Our writer takes a look at one candidate with…

Read more »

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »