Shares in Tullow Oil (LSE: TLW) were given a boost today with the release of an update regarding its operations in Kenya. The company states that it has encountered good oil shows, seen in cuttings and rotary sidewall cores, across an interval of over 700 metres at the Cheptuket-1 well in Kenya. The well is the first one to test the Kerio Valley Basin and was drilled to a depth of over 3,000 metres. Following its encouraging results, further exploration activities are being evaluated.

With Tullow holding a 40% stake in the block, it’s clearly good news for the company. And with its shares rising by around 4% today, it seems to have been well-received by the market. Looking ahead, there’s the scope for further improvements to investor sentiment in Tullow, since it’s expected to ramp-up production in the current year as Project TEN in Ghana comes on-stream. This could significantly increase the company’s profitability and cash flow, allowing the prospect for a sustained share price rise over the medium term.

Clearly, Tullow’s share price performance is highly dependent on how the oil price performs in future. However, with it trading on a price-to-earnings growth (PEG) ratio of 0.1, it appears to have a rather enticing risk/reward ratio.

Long-term play

While Tullow appears to be worth buying, Genel Energy (LSE: GENL) continues to be a relatively high-risk option within the oil space. Certainly, its asset base is very appealing even though it recently reduced its reserves estimates, which caused an impairment of around $1bn to the value of its asset base. As such, it has the potential to deliver excellent profitability in the long run.

The problem though, is that the potential rewards on offer seem to be outweighed by the risks it faces. The geopolitical instability of the Northern Iraq/Kurdistan region could hurt its production capabilities in future, while there are also concerns surrounding payment for oil.

Although recent payments have caused investors to become somewhat more upbeat regarding the payment of outstanding amounts owed to Genel Energy, the situation could easily change and leave Genel with a cash flow issue. With a number of oil stocks being cheap and offering less risk, there seem to be better options available elsewhere.

Investor sentiment

Meanwhile, shares in North Africa and Middle East oil and gas exploration company Gulfsands Petroleum (LSE: GPX) have soared by 36% since the turn of the year. In fact, the company released a statement just last week stating that it’s unaware of any reason for the share price movement. It’s likely that a buoyant oil price has caused investor sentiment to improve towards the wider sector and this has benefitted Gulfsands Petroleum to a degree.

Of course, this comes after a challenging period for the company which saw its management team replaced last year. And while it has undertaken a successful fundraising recently and has the potential to deliver profitability in the long run, there appear to be better funded and less risky exploration plays on offer elsewhere.

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