Earlier today oil and gas explorer and producer, Cooper Basin Ltd. (ASX: COE), reported a hefty loss of $58 million from its operations, following huge write-offs in the wake of falling oil prices, in the six months to 31 December 2014.
After $58.9 million of write-offs and a 37% drop in revenue from oil sales, the $87 million company's $0.9 million underlying net profit whittled away to a very heavy loss.
The write-offs were largely to do with the company's Tunisian portfolio, which has been up for sale for some time and is currently being given a nil carrying value – a direct result of crashing oil prices and poor market sentiment.
Full-year capex will be cut by 35% to $26 million in the coming year, in an attempt to grow its cash position for a transition to a larger amount of gas production. The company said it'll also be targeting wells which can quickly move from appraisal through to development for near-term production.
Following both oil and share price falls of more than 50% in the past year, Cooper Energy has – like many of its larger peers – been forced to endure a period of lower profitability.
Whilst Managing Director David Maxwell noted the company is on track to meet production guidance of 500,000 to 560,000 barrels of oil in the coming year, it's likely underlying earnings (i.e. profit before write-offs) could continue to fall further in the near-term.
Mr Maxwell, highlighted the group's cost base saying, "All of our operations are cash positive, with guidance operating costs of $35 per barrel for Cooper Basin and $50 per barrel for Indonesia, well within current Australian dollar prices."
However during the period the company achieved an average oil price of $97.43 per barrel (down from $126.5 per barrel in the prior period), which is quite good. Unfortunately, given current prices are sitting well below that, the company's second-half result is not likely to be any better than today's.
Buy, Hold or Sell?
Whilst the company may look cheap at today's prices, it's likely we'll see further reductions in profitability in the near-term. Although it's too hard to tell whether shareholders can expect further write-downs from here, investors are probably better off keeping their distance from Cooper Energy shares, for now.
