What's in the pipeline for private investors' favourite oil and gas shares?
Oil and gas companies are always popular with investors -- and never more so than during a period of high oil prices, such as we have seen over the last year.
In this article, I am going to take a look at the current fortunes and prospects of some of the most popular medium-sized oil and gas explorers -- many of which stand on the brink of a make-or-break transformation.
Not regular shares
The share prices of resource companies are heavily correlated to the commodities they sell, rather than the wider equity market.
Even FTSE 100 giants like BP (LSE: BP) and Royal Dutch Shell (LSE: RDSB) are affected by this, but smaller companies focused on exploration and production are much more vulnerable as raw commodities are their sole source of income.
Oil prices have been falling recently, and the global fears caused by weaker US economic data and the Greek and French elections have driven a fall in share prices for most resource stocks, as investors worry that demand for oil and metals will fall.
The result is that most of the shares in this article have fallen heavily in recent days. However, it's worth remembering that these companies are all about exploration -- a major success will lift their share price, whatever happens to the market. Tullow Oil (LSE: TLW) provided a good example of this yesterday, rising following an important oil find in Kenya, while all of its peers fell.
All of this means that recent falls could be a good buying opportunity.
Gulf Keystone Petroleum
Gulf Keystone Petroleum (LSE: GKP) operates solely in the semi-autonomous Kurdistan region of Iraq. Here, it has large and growing reserves based around its Shaikan block, which is currently thought have a 90% probability of containing at least eight billion barrels of oil.
Political concerns and the fact that all of its eggs are in one basket heighten the risk for investors, but these risks seem manageable, and Gulf Keystone is currently gearing up for a big increase in production. Some questions remain over funding and export arrangements, but it has big potential.
Xcite Energy (LSE: XEL) regularly features in broker TD Direct's list of most traded companies. It operates in the North Sea and recently upgraded its proven oil reserves -- a key value indicator -- to 96MMstb (million stock tank barrels). Its main asset is Bentley field, which is currently being drilled for production in the first part of a three-phase development programme.
Xcite still needs to raise funds to complete the development programme, but if Bentley lives up to expectations, it should attract interest and money from larger players.
Range Resources Ltd (LSE: RRL) is an oil and gas explorer with interests in Puntland, USA, the Republic of Georgia and Trinidad.
It's the opportunities in Puntland (an autonomous state of Somalia) that have really captured investors' imaginations over the last year and some definitive news on the highly prospective Shabeel-1 well should be due shortly.
Rockhopper Exploration & Falkland Oil & Gas
In my recent article, Who Will Win The Falklands Oil Race, I looked at the five London-listed companies currently vying for exploration success in the Falkland Islands.
Rockhopper Exploration (LSE: RKH) and Falkland Oil & Gas (LSE: FOGL) are probably the cream of the crop: Rockhopper because it is the only company to have found any oil, and Falkland Oil & Gas because its licences are considered to include the best prospects in the area. It is due shortly to start drilling its flagship Loligo prospect, which could contain as much as 4.7 billion barrels of oil.
Rockhopper is currently looking for a partner to help develop its Sea Lion oil field. Expect developments from both companies later this year.
Africa is one of the world's most resource-rich areas, and BowLeven (LSE: BLVN) is focused on the West African state of Cameroon. It has significant oil and gas resources in this area, and a fully funded exploration programme to develop these further.
Back in February, BowLeven's share price took a dive after an aborted takeover attempt by Dragon Oil (LSE: DGO) and it currently looks quite cheap, considering its resources. More importantly, BowLeven recently signed a Memorandum of Understanding with German company Ferrostaal to provide gas from its offshore Cameroon Etinde gas field to a fertiliser plant onshore.
Both plant and gas field are currently being developed, and the deal is to provide the plant with gas from the end of 2015. This is a key step forwards as it starts the monetisation of BowLeven's assets.
Where next for oil and gas prices?
Despite the recent fall in oil prices, it isn't exactly cheap, and the Saudis -- who produce 10m barrels of oil per day and claim spare capacity of 2.5m barrels per day -- have indicated that they intend to manipulate supply to keep the price of crude at or close to $100. Most oil explorers base their resource valuations on prices below $100 per barrel, and I would steer well clear of any that depend on prices over $100 to be commercially viable.
Gas prices vary much more widely around the world, as BG Group's (LSE: BG) recent results highlighted, but the general trend is likely to be upwards over the next few years, thanks to rising global demand.
Despite their mid-cap valuations, companies like these are risky investments that can go from hero to zero in no time at all. If you consider investing, you should do your own research, form your own opinion and only invest what you are prepared to lose.
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> Roland owns shares in Royal Dutch Shell but does not own any other share mentioned in this article.