Is Falcon Oil and Gas Limited A Better Buy Than Premier Oil PLC & Enquest Plc?

Is Falcon Oil and Gas Limited (LON:FOG) a better buy than Premier Oil PLC (LON:PMO) and Enquest Plc (LON:ENQ)?

| 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.

Many oil companies offer good value at the moment, and for many investors now is the time to buy. However, not all of the companies will spring back if the oil price rises. High levels of debt, operating in expensive regions and lack of drilling are three factors that I believe will hold back stock prices. 

Last week’s news from Falcon Oil & Gas (LSE: FOG) was brilliant for the company. Falcon announced that partners had drilled another successful well in the Beetaloo Basin, Australia. On the back of another successful well, the shares rose up more than 30%; following this, the third well of the campaign is being brought forward by 12 months (Falcon is in the middle of a nine-well campaign over three years). The company has no expenditure and lots of exposure to drilling and, due to this, is one of my top picks in the sector. Recently the shares have been trading at 52-week lows, but any more success in the drilling campaign should cause the shares to re-rate. 

Premier Oil (LSE: PMO) is still struggling after taking large write-downs on various assets. Subsequently, the shares are performing in the bottom half of its peer group. The company will make another loss this year, and I don’t think the situation will get better any time soon.  Operating primarily out of the North Sea is also a negative in my view, due to the high costs involved. The balance sheet doesn’t look good, and although debt covenants have been moved back, the company needs oil to gain a few dollars in order to make a return.

Enquest (LSE: ENQ) is very similar to Premier Oil and needs an oil price of above $60 to really make a profit. Revenues are 12% down in H1 2015 even though the company increased production by 17% to 29,665 boepd. The company has some exiting developments to come on-stream in the next few years, but it looks as if Enquest needs the oil price to rise quite substantially. The balance sheet isn’t very healthy with a net debt of $1.28bn, but it can afford to wait it out and won’t be in any danger of breaching debt covenants. Production is forecast to reach between 33,000-36,000 by year-end with Alma/Galia coming online, and this should help the company keep revenues up. 

Investing in the oil & gas sector is risky at the moment but the reward is huge. In the case of Falcon Oil & Gas, I think it offers one of the best investment cases in the sector. The company has no large capital expenditure for years, and has exposure to the high-impact drilling campaign of which the first two of nine wells have been successful. Even after the share price rose last week on the back of good well results, I believe Falcon is a good bet for the future and should outperform. 

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

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

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

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »