Is Rockhopper Exploration Plc The Perfect Partner For BP plc In Your Portfolio?

Should you buy these 2 oil stocks right now? Rockhopper Exploration Plc (LON: RKH) and BP plc (LON: BP)?

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Rockhopper Exploration (LSE: RKH) has announced two pieces of positive news flow today, which should provide investors in the company with greater confidence regarding its future prospects.

The first piece of news is that the environmental impact assessment for the Ombrina Mare oil and gas project in Italy has been given the green light by the Italian Minister for the Environment. The decree is now due to be considered by the Minister of Economic Development, having already been approved by the Ministry of Cultural Heritage. As such, it represents significant progress for Rockhopper and, while there is still some way to go before the all-clear is given, the project continues to move in the right direction.

The second piece of positive news flow is that Rockhopper has agreed a $22m deal to acquire Beach Energy. It owns a portfolio of non-operated production and exploration interests in Egypt and Rockhopper will acquire the full share capital in the deal. The transaction will be made up of $11.5m in cash and $10.5m in shares, with Rockhopper set to issue new shares at a price based on the volume-weighted average price of its shares in the 30 days prior to completion of the deal.

Rockhopper expects the portfolio to be net cash flow positive immediately and provides it with yet another group of impressive assets in its key Mediterranean and North Africa region. As a result, it appears to be a sound move for the business and should deliver improved financial performance for the business over the medium to long term.

Of course, Rockhopper remains a relatively small oil and gas play and, therefore, it could be beneficial to buy it alongside an oil major. At the present time, BP (LSE: BP) appears to offer excellent value for money, with its shares trading on a price to book (P/B) of just 0.94 and, as a consequence, it could benefit from an upward rerating over the medium to long term.

However, where BP really adds value alongside Rockhopper is with regard to its size, scale and diversity. Certainly, Rockhopper’s acquisition announced today provides it with a wider range of assets, but BP operates across the globe in many more locations than Rockhopper, with its balance sheet also being much stronger and more financially sound despite the heavy toll that the Deepwater Horizon oil spill has had on it.

Furthermore, Rockhopper remains a loss-making business and is expected to continue to be so in each of the next two financial years. BP, meanwhile, is highly profitable and, unlike Rockhopper, is able to pay a very generous dividend, with its shares currently yielding a whopping 6.9% and the company’s management team focused on at least maintaining dividends at their current level over the medium term.

So, while Rockhopper is a relatively appealing, albeit risky, buy at the present time, buying it alongside a more stable and larger entity such as BP seems to equate to an enticing partnership.

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.

Peter Stephens owns shares of BP. 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.

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