Shares in Falkland Oil and Gas (LSE: FOGL) have fallen by up to 8% after the release of an operational update by the company. On the one hand, the update is positive because Falkland Oil and Gas has encountered oil and gas shows while drilling through its main target horizon. Furthermore, intermediate wireline logs indicate the possible presence of hydrocarbon bearing sandstones within the main target horizon and, as such, the company will now drill deeper in an attempt to evaluate additional targets.
However, on the other hand today’s update is disappointing since progress on the well has been slower than expected due to a side-track being required for mechanical reasons. As a result, the share of Falkland Oil and Gas’ costs for the Humpback well have risen, although the company stresses that it has sufficient cash to complete the drilling programme.
Clearly, Falkland Oil and Gas has considerable long term potential and, while a delay is somewhat disappointing, it continues to make encouraging overall progress. Therefore, today’s share price fall could be an opportunity for less risk averse investors to buy a slice of the company for the long term.
Similarly, Russian steel maker and coal miner Evraz (LSE: EVR) also appears to be worth buying after it released an upbeat production report. In the third quarter of the year the production of all of its commodities rose versus the second quarter, with coking coal being the only exception.
Despite higher production, Evraz continues to experience considerable price falls, which is putting its bottom line under a degree of pressure. However, it is due to end three years of losses by posting a pretax profit in the current year, with growth of 5% in its earnings being forecast for next year. And, with it trading on a forward price to earnings (P/E) ratio of just 6.7 even after today’s 4% share price rise, it appears to be a very enticing purchase for the medium to long term.
Iraq/Kurdistan based oil producer Genel Energy (LSE: GENL) also has a relatively wide margin of safety, with its shares trading on a price to earnings growth (PEG) ratio of just 1.3 after having risen by 9% in the last month.
Looking ahead, risks to Genel’s profitability include disruption from the conflict which is taking place close to its operations as well as further delays in receiving monies owed for oil production from the local government. However, with a world-class asset base and a wide margin of safety, these risks appear to be adequately priced in which means that Genel’s share price could continue their run of the last few weeks.
Meanwhile, Nostrum Oil & Gas (LSE: NOG) has been a relatively impressive performer in recent years, with it maintaining high levels of profitability while many of its sector peers have endured disappointing performance. However, in the current year its bottom line is expected to fall by 74% but, looking ahead to next year, it is due to recover somewhat with growth of 62%.
This puts Nostrum on a PEG ratio of just 0.4 and, while dividends are set to be cut next year so that the company’s shares yield just 1.7%, shareholder payouts are due to be covered 2.5 times by profit. This indicates that Nostrum could become an appealing income play, with its shares also having the potential to continue the run which has seen them rise by 21% since the turn of the year.
