Shares in Falkland Oil and Gas (LSE: FOGL) and Rockhopper (LSE: RKH) have posted excellent returns in the last three months, being up 25% and 21% respectively as investor sentiment has picked up strongly. The key reason for this that their joint venture in the Falkland Islands has yielded a major oil discovery, with the Zebedee well providing significant future potential for both companies’ top and bottom lines.
Oil Price
Of course, the price of oil arguably has less of an impact upon the share price performance of Falkland Oil and Gas and Rockhopper, since they are still in the exploration phase and so have no real revenue which could be affected in the short term by a depressed oil price. However, if the low oil price continues then it could make production less likely, since it will make much less economic sense to do so.
Clearly, both stocks are largely dependent upon news flow for their capital gains, with encouraging progress regarding the drilling programme helping to lift investor sentiment. This is in spite of legal threats from Argentina regarding access to the prospects around the islands and, looking ahead, it seems unlikely that the joint venture’s progress will be slowed by such issues.
Of course, the outcome of the present drilling programme will have a major impact upon the share prices of Rockhopper and Falkland Oil and Gas’ but, with impressive finances, they seem to be exploration stocks worth investing in.
Director Deals
While director dealing is often looked upon as providing an indication of the view of senior management regarding the prospects for a company, the sale of £109m of shares in Nostrum Oil & Gas (LSE: NOG) by its Chairman, Frank Monstrey, may not indicate that it is worth selling. That’s because the sale was accompanied with a statement saying that no further share sales were planned and that he remains upbeat regarding the company’s long term prospects.
Certainly, investors in the company appear to agree with him, since shares in Nostrum have soared by 45% since the turn of the year and have risen by around 5% since the share sale at the end of March. And, with Nostrum trading on a forward price to earnings (P/E) ratio of 15.4, it appears to have further upside ahead of it over the medium to long term.
Looking Ahead
Even though the outlook for Wood Group (LSE: WG) is less upbeat than for the other three stocks discussed above, it could still prove to be an excellent investment. Certainly, its bottom line is expected to fall by 1% this year and by a further 5% next year, but the company offers superb value for money at the present time.
For example, it trades on a P/E ratio of just 12.3, which indicates that its shares could be subject to an upward rerating moving forward. And, with Wood Group having very sound finances and a great track record of profit growth, it seems likely to make the efficiencies necessary to return to growth over the medium term.
