Since the turn of the year, the outlook for the oil sector has worsened. That’s because, while at the start of the year there was still hope regarding the short term performance of the oil price, today it is widely accepted that oil will not be soaring past $100 per barrel anytime soon.
In fact, most of the executives at major oil companies are now planning for a sustained period of lower oil prices, with capital expenditure being reigned back in, costs being cut and efficiencies being highly sought after.
And, even though most oil stocks have seen their valuations come under pressure this year, some oil companies have had a quite superb year. In fact, the investors of a number of oil explorers and producers are sitting on tidy profits that, realistically, could continue.
For example, exploration company Falkland Oil & Gas (LSE: FOGL) has posted a rise in its share price of 21% since the turn of the year, with it being up a further 7% today. In fact, in recent days Falkland Oil and Gas has posted exceptionally strong returns, with the company going as far as to release a statement saying that it is unaware of any reason for such strong gains.
Clearly, 2015 has been a very good year for the company, with major successes at two of the four exploration wells in its drilling programme already under its belt. And, with the results of the third due to be released in the very near future, Falkland Oil & Gas’ share price could continue to be volatile in the near term. Certainly, positive news would be likely to push its shares higher but, even if the Humpback well results are relatively disappointing, Falkland Oil & Gas remains a financially sound business with a bright future.
Similarly, Nostrum (LSE: NOG) has also enjoyed a strong 2015 thus far, with its share price having risen by 23% since the turn of the year. This is at least partly due to improving investor sentiment, as the market begins to factor in improved performance from the company which is due in 2016.
In fact, Nostrum is expected to increase its pretax profit from £40m in the current year to as much as £127m next year. And, with earnings growth in the oil and gas industry being somewhat more difficult to come by at the present time, it appears as though investors are prepared to reward Nostrum for its relatively strong prospective performance. Furthermore, and while Nostrum is due to cut its dividend next year, the company is expected to have a payout ratio of just 38%. This indicates that, over the medium term, dividend rises could be on the cards.
Meanwhile, Gulf Marine Services (LSE: GMS) has bucked the wider oil industry trend to rise by 16% since the turn of the year. The company, which provides self-propelled self-elevating support vessels to the oil and gas industry, benefitted from an upbeat set of first half results, with the expectation being that they will continue to improve in the second half of the current financial year.
And, looking ahead to next year, earnings growth of 23% is being forecast. This has the potential to further improve investor sentiment in the company and, when combined with a price to earnings (P/E) ratio of just 6.7, equates to a price to earnings growth (PEG) ratio of only 0.2. This indicates that Gulf Marine Services continues to offer a wide margin of safety, thereby making now a good time to buy a slice of the business for the long term.
