Falkland Oil and Gas Limited Set To Open Up New Horizons

Will Falkland Oil and Gas Limited (LON: FOGL) hit new oil in its new prospects?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The recent oil discovery at Isobel Deep in the North Falkland Basin will have brought payday distinctly closer for the companies owning a share of the assets. Premier Oil is operating the well, and Falkland Oil and Gas (LSE: FOGL) has a 40% stake.

Hot on the heels of that, announced at the end of May, comes the news that Falkland Oil and Gas has spudded an exploration well targetting the Humpback prospect covered by licence PL012 in which Falkland has a 52.5% interest. The new well, CEO Tim Bushell said, “is the exciting first test of a new geological play concept within the South and East Falkland basins. In the event of encouraging results, we have identified, on 3D seismic, multiple follow-up prospects“.

The biggest yet?

There’s always the chance that the Humpback prospect will turn out dry, and that would hit the share price, but it doesn’t look likely at this point. In fact, the company estimates total prospective resources of over a billion barrels for the cluster of prospects in the Fitzroy sub-basin, of which Humpback is one. And the new well will target multiple stacked reservoirs, increasing the chance of a hydrocarbon discovery.

There has to be a good chance that Humpback will encounter the best field yet in the Falklands basins, and that could lead the South and East basins to eclipse even the already great-looking prospects North of the islands. It should take around 65 days to drill the well, so we shouldn’t have too long to wait to find out.

Why so cheap?

The big question, with production and profits surely not too far ahead for Falkland Oil and Gas, is why the share price is still stuck in a rut. After a disappointing well result back in November 2012 the price crashed, and it’s stayed there — between then and now, there’s been almost no overall movement to today’s 29p per share.

The oil price crash has obviously played a big part, and an asset valuation at prices of around $100 a barrel rather than current $65 levels would considerably boost the price of the shares. But even so, the explorer is fully funded for its 2015 drilling programme, and though there’s no profit forecast for this year and next, it really can’t be very far away now.

There aren’t many brokers offering recommendations at the moment, but there is a Buy consensus emerging — and the average price target of 34p sounds very conservative to me.

Good value

I’m not really an oil investor, but the risk to reward ratio for Falkland Oil and Gas is looking pretty favourable to me right now, and I see a high probability of profit for those investing at today’s prices.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft 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.

More on Investing Articles

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »