Take Advantage Of A Low Oil Price With BP plc, Tullow Oil plc, BG Group plc And Solo Oil PLC


It’s been a tough year for oil companies, with the price of oil falling from around $110 per barrel to as low as $80. That’s a fall of over 25% and has a direct impact on the top and bottom lines of companies across the sector.

Of course, low oil prices are a perennial hazard for oil companies. Just because oil prices had been buoyant for a number of years does not mean they won’t fall and, over the long run, they will inevitably fluctuate.

Moreover, the oil price is an external factor that cannot be controlled by the oil companies. So, just because their profits are down does not mean that they aren’t great companies. Indeed, a low oil price could present a great opportunity to buy low, with the aim of selling high at a later date.

Oil Majors

With the aim of buying low in mind, investors are literally spoilt for choice when it comes to oil majors. For example, BP (LSE: BP) (NYSE: BP) continues to offer superb value for money and, as well as a low oil price knocking sentiment, Russian sanctions and the continued fallout from the Deepwater Horizon oil spill are keeping shares pegged back. Today, they trade on a price to earnings (P/E) ratio of just 9.7, which highlights their substantial potential for an upward rerating. And, with a yield of 5.5%, their total return could impress over the long run.

Further Value

Still in the FTSE 100, oil exploration company Tullow Oil (LSE: TLW) still trades at a price that seems to scream growth at a reasonable price. That’s because, while its bottom line is incredibly volatile, it is expected to increase earnings by a whopping 191% next year. This puts it on a price to earnings growth (PEG) ratio of just 0.3 so that even if the bottom line does disappoint, there seems to be a wide margin of safety already built into the current valuation.

The same, however, cannot be said of BG’s (LSE: BG) current valuation. Its P/E ratio of 14.7 is higher than that of the FTSE 100, which has a P/E ratio of 13.6. Despite this, BG could be well worth buying since it has a superb asset base and, with a new CEO at the helm, could finally begin to maximise its assets across the globe to deliver earnings growth for investors. As such, the frequent profit warnings that have been a feature of the recent past for BG could cease to be repeated moving forward.

A Smaller Option

Of course, it’s not just the majors that could have potential. Small cap Solo Oil (LSE: SOLO) has risen by 236% in 2014, although it experienced disappointment of late when its oil discovery at the Horse Hill-1 well was considerably below expectations. Of course, this is something that ‘comes with the territory’ of being an oil exploration company and doesn’t mean Solo Oil isn’t worth buying. Indeed, the pullback in its share price of 19% over the last week could present an opportunity for less risk-averse investors.

Looking Ahead

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Peter Stephens owns shares of BP. The Motley Fool UK has recommended Tullow Oil. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.