Is Now The Perfect Time To Buy JKX Oil & Gas Plc, Dragon Oil plc And Rockhopper Exploration Plc?

Should you add these 3 resource plays to your portfolio? JKX Oil & Gas Plc (LON: JKX), Dragon Oil plc (LON: DGO) and Rockhopper Exploration Plc (LON: RKH)

Peter Stephens

Having held various senior management positions in the manufacturing sector, Peter founded his own manufacturing company in 1996. This was subsequently sold in 2007. Meanwhile, his passion for investing (which began during the privatisations of the 1980s) remains strong and he couples this with writing for The Motley Fool as a Contractor. His investment style is value-oriented; focusing on company fundamentals, as well as assessing the strength and presence of a competitive advantage. While above-average growth prospects remain very attractive, a greater focus on dividends has crept in since Peter became a part-time retiree in 2007.

Published 24 February, 2015 9:06 am GMT

| More on: RKH

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.

JKX

Shares in JKX (LSE: JKX) soared by up to 18% yesterday, meaning that they are up a whopping 200% since the turn of the year in what has been a very eventful seven weeks for the company. Of course, JKX’s share price fell heavily last week after Russian investment firm, Proxima Capital, said that it was no longer interested in making a bid for the company.

Clearly, this was disappointing news and came just days after JKX announced that it was seeking up to $180m in compensation from the Ukraine government over alleged international treaty violations. And, with an emergency arbitrator last month ordering the Ukraine government to refrain from imposing royalties of more than 28% on the production of gas by JKX’s Ukrainian subsidiary, it is clearly a very uncertain period for the company.

As such, it may be worth watching JKX rather than buying a slice of it, since its share price appears to be highly volatile and lacking a clear long term direction at the present time.

Dragon Oil

Having fallen by 12% in the last year, shares in Dragon Oil (LSE: DGO) appear to offer a considerable margin of safety at the present time. That’s despite the company’s bottom line being forecast to fall by a whopping 51% in the current year, as a lower oil price starts to have a major impact on its income statement.

In fact, Dragon Oil now trades on a very reasonable price to earnings (P/E) ratio of 12.8 which, while the FTSE 100 has a P/E ratio of around 16, indicates that it offers good value for money on a relative basis. And, with Dragon Oil forecast to increase profitability by 58% next year, it trades on a price to earnings growth (PEG) ratio of just 0.2, which indicates that growth is on offer at a very reasonable price. As such, it could be a strong, albeit volatile, medium to long term performer.

Rockhopper

2015 has got off to a generally positive start for Rockhopper (LSE: RKH), with the exploration company announcing upbeat news flow with regard to its joint drilling programme in the Falkland Islands. In fact, the Eirik Raude rig is on the move from West Africa to the Falkland Islands, with drilling on the Zebedee well due to commence as soon as next month.

Clearly, the results of the drilling programme will provide clarity on reserves in the field and, while the outcome is a known unknown, a major positive for Rockhopper is the fact that it has a relatively sound financial outlook, with the company having sufficient cash to contribute to its part in the programme.

So, while its short term share price movements are likely to be relatively volatile and, to an extent, somewhat binary in terms of the volume of reserves that it finds, Rockhopper could prove to be a worthwhile medium to long term resources play.