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Is Roxi Petroleum plc The Perfect Partner For BG Group plc In Your Portfolio?

Shares in Roxi Petroleum (LSE: RXP) have fallen by around 17% today following a somewhat disappointing operational update released by the company.

While Deep Well 801 has been spudded as planned at the BNG Contract Area in the west of Kazakhstan, Deep Well A5 has encountered problems. This was first announced in a previous update from the company, with Roxi Petroleum stating in its 1 December release that there was a stuck pipe in the interval, and that it could mean the deferral of the 30-day flow test until February 2015.

Today’s operational update has now confirmed that Roxi Petroleum expects this to be the case, which is clearly disappointing news for investors. While the company will attempt the most cost-effective measures in order to clean up the well for testing, the success of the various procedures is not yet known and, as well as time, the delay could leave the company with an unwelcome bill in the short term. In addition, it could lead to a further decline in sentiment in the near term, as investors revaluate their forecasts for the company.

Strong Performance

Of course, 2014 has nevertheless been a great year overall for investors in Roxi Petroleum. Shares in the Kazakhstan-based oil and gas explorer have risen by a hugely impressive 52% and, while there could be further volatility in the short run, its long term future appears to be bright.

Roxi Petroleum’s performance in 2014, though, contrasts markedly with that of larger sector peer, BG (LSE: BG) (NASDAQOTH: BRGYY.US), which has seen its share price fall by 37% during the course of the year. A falling oil price and uncertainty surrounding the short to medium term prospects of the company have been the major contributory factors and, looking ahead, BG’s valuation could come under more pressure.

Looking Ahead

That’s because BG is forecast to post a decline in earnings of 17% in the current year, followed by a further fall of 15% next year. If met, this would take earnings per share to below their 2009 level, which is clearly disappointing for investors in the company. Furthermore, with BG having a price to earnings (P/E) ratio of 12.1, its rating could come under pressure in 2015 unless it can begin to make the necessary changes to the business that can deliver improved numbers moving forward.

Clearly, a new CEO could be the catalyst to turn BG’s fortunes around. However, investors in the company should expect significant changes in the short run which, when coupled with a potentially weaker oil price, could mean that shares in BG may fall further before they begin to show signs of a recovery.

In fact, the same could be true of Roxi Petroleum, since there appears to be considerable uncertainty with regard to the removal of the coil tubing equipment and, as a result, sentiment could weaken while further news is awaited.

As such, while BG and Roxi Petroleum both have considerable long term potential, it may be worth waiting for a lower share price before buying a slice of either company.

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Peter Stephens has no position in any shares mentioned. 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.