Is LGO Energy PLC A Better Buy Than Nostrum Oil & Gas PLC, Dragon Oil plc And Cairn Energy PLC?

Over the course of the last month, there has been a step-change in investor sentiment for Trinidad-focused oil producer, LGO (LSE: LGO). In fact, its shares have risen by an incredible 25% in the last month alone which, having fallen by around 58% in the previous seven months, is a superb result for the company’s investors.

Of course, LGO continues to make encouraging progress at its Goudron field, with its latest update showing that its 2015 drilling programme is performing as expected. And, looking ahead, LGO is now planning to double the size of its multi-year Goudron drilling campaign, with the company now set to seek environmental approval for the drilling of up to 60 wells in the next few years.

Furthermore, even with a low oil price environment, LGO believes that its cost base is low enough to make the field economically viable, which bodes well for its long term profitability if, as expected, we are now in an era of sub-$100 dollar oil.

Sector Peers

Of course, LGO is not the only oil company with a bright future. For example, larger peer Nostrum (LSE: NOG) is expected to return to growing profitability next year, with its bottom line set to overcome a disappointing 2015 by posting growth of up to 270% in its pretax profit next year.

Clearly, much of this growth is already priced in, with Nostrum having a price to earnings (P/E) ratio of 44.6 and, while such strong growth may be very achievable, the volatility of the oil price may mean that forecasts are downgraded over the coming months. However, even if this does occur Nostrum appears to offer a sufficient margin of safety, with it having a price to earnings growth (PEG) ratio of just 0.2.

Similarly, Dragon Oil (LSE: DGO) also has upbeat growth prospects, with its bottom line forecast to rise by 33% next year. And, with it trading on a PEG ratio of just 0.5, it appears to offer excellent value for money. The problem, though, is that Dragon Oil is the subject of a takeover attempt at the present time, with its shares trading only 7% below the offer price of 735p per share. As such, there seems to be limited upside if the deal goes through.

Meanwhile, Cairn Energy (LSE: CNE) looks set to make use of its strong balance sheet over the medium term. In fact, the lower oil price could be beneficial for Cairn, since it means that the cost to undertake its planned exploration activities is likely to be lower in the coming years and, should the oil price recover in the long run, then the company could take advantage of being counter-cyclical.

However, with it being highly dependent upon news flow in the meantime, Nostrum could prove to be a better buy than Cairn. And, while LGO undoubtedly has a very bright future, the greater size, scale and diversity offered by Nostrum makes it a more appealing buy at the present time, while for Dragon Oil it appears as though there is limited upside for now due to the aforementioned takeover attempt.

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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.