Oil prices are on the rise after years of industry lows. In the final month of 2017, hedge funds reported bullish buying on oil futures and futures prices reached as high as $67 per barrel in London. Output caps and adherence to new production levels have helped markets considerably. The Energy Information Administration (EIA) reports Brent crude oil at an average of $53.88 in 2017 with an average projection of $57.26 for 2018.
While gains are expected to be incremental, oil prices appear to be on an uptrend and OPEC negotiations are giving the sector an even more positive outlook through the first half of 2018. Rising oil prices and a lower corporate tax rate following new tax form legislation will certainly help boost the bottom lines of many energy companies, and their stocks as well.
With an uptrend in oil prices, 2018 could be a good time to go long on the energy sector. While large-cap conglomerates have established market positions, emerging small-cap companies offer potential for growth and a lower market entry price. Additionally, they also offer the advantage of volatility since deep discounts can offer a low average per-share price.
We have highlighted three of the top oil market small caps with high potential for future gains. All data is as of February 14, 2014.
Regal Petroleum PLC (RGPMF)
Regal has a market cap of $87.685 million. The stock trades at 32 cents with a 156% gain year-to-date. The company’s primary business focuses on oil and gas exploration and production. The company is based in London with its primary operations in the eastern part of the world.
One-year revenue growth for Regal was 9.48% with trailing twelve-month revenue of $27.6 million. The company has steady free cash flow of $4.5 million. It also has a current ratio of 13, giving it broad latitude for taking on new assets and drilling projects in 2018.
Marksmen Energy Inc. (MKSEF)
Marksmen is an emerging energy company with offices in Calgary, Alberta and Worthington, Ohio. The company’s primary exploration and production operations are in Ohio. For the trailing twelve months it reported $0.97 million in revenue with a one-year growth rate of 150% in stock price. The company has a current liabilities coverage ratio of four times with a quarterly free cash flow of $6,300.
Marksmen has a market cap of $16.64 million. The stock is trading at 17.5 cents with a gain of 4.2% year-to-date.
Horizon Oil Ltd (HZNFF)
Horizon Oil has a market cap of $103.59 million. It is trading at 7.85 cents with a 2017 return of 100%. The company has reported one-year revenue growth of 16%, generating twelve-month revenue of $66.31 million. Free cash flow is also steady for the company at $32 million and 31% of its market cap.
Horizon’s business is focused on oil and gas exploration in the Asia Pacific region. Its primary locations for business operations are China, New Zealand and New Guinea.
The Bottom Line
Energy stocks will continue to receive a lot of attention if oil maintains its upward price march. However, some of the big companies may already seem out of reach. They have made their moves and left some investors behind. (See also: Investing in Oil Stocks vs. Oil Companies: What’s the Difference?)
Small-cap energy stocks offer an opportunity for investors to get into the energy sector with some lower risks due to the penny stock prices. Many of these companies are just now establishing new business activities with stock prices on the uptrend. These companies offer substantial potential to gain in 2018 if oil prices continue to increase.
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