Shares in Falkland Oil and Gas (LSE: FOGL) received a boost today with news that the Eirik Raude drilling unit has arrived at the North Falkland Basin site. This is good news for the company and now means that it can shortly commence drilling in the region, which could have a major impact upon its share price.
Important Period
In fact, this is set to be a crucial period for the company. That’s because its drilling programme will provide investors in the company with a much clearer idea on the potential reserves available to it. As a result, Falkland Oil and Gas could be viewed as a short-term high risk/high reward stock, with its share price having the potential to move sharply in either direction depending upon the results of the aforementioned drilling programme.
As such, it could be a sound idea to pair it up with one or more sector peers, since the oil and gas exploration space is hardly the most certain at the best of times.
Sector Peers
With the oil and gas sector still reeling from the falling price of commodities, there appears to be a number of good value opportunities on offer. This is especially the case when the forecasts for the various companies are taken into account, with their present day valuations being rather high as a result of falling profitability.
For example, Genel (LSE: GENL) is expected to have made a loss when it reports its results this week, but is forecast to turn this around significantly over the next two years. In fact, Genel is expected to deliver a profit of £135m in 2016, which puts it on a price to earnings growth (PEG) ratio of just 0.2. This indicates that it offers excellent value for money at the present time.
Likewise, Soco International (LSE: SIA) is due to endure a tough 2015, but then bounce back strongly next year. As such, its forward price to earnings (P/E) ratio of 25.2 does not tell the whole story, with Soco’s PEG ratio of 0.2 indicating that it could be worth buying at the present time.
And with Nostrum (LSE: NOG) being relatively well financed and having the potential to significantly increase its production from 2017 onwards (when a new pipeline is expected to be completed), it could also prove to be a strong performer over the long term.
Looking Ahead
So, with Falkland Oil and Gas’s short-term future being relatively risky, it could be well worth adding other oil stocks to your portfolio. Certainly, it remains a very risky sector but, with the outlook for the likes of Genel, Nostrum and Soco International being relatively positive, now could be a good time to buy a slice of all four companies.
