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Are Xcite Energy Limited, LGO Energy PLC & Petrofac Limited Set To Post Stunning Capital Gains?

Today’s half-year results from oil explorer and producer LGO Energy (LSE: LGO) seem upbeat and show that the company is making encouraging progress. Notably, revenues in the first half of the year have more than doubled versus the same period last year, with them rising from £3.2m to £6.6m. This has caused gross profit to rise by over 150% — from £800k last year to over £2m this year.

The key reason for this was an increase in group oil sales of over 200%, with the 65,000 barrels sold in the first half of 2014 increasing to 208,000 barrels in the same period of 2015. And, while LGO Energy’s pretax loss of £2.5m is up slightly on the £2.4m from last year, when it excludes non-cash items the loss mas a much lower £187,000.

Looking ahead, the company is focusing on reducing costs in order to provide a stable, economically viable platform for future growth. Additionally, it is expecting to complete and bring on to production all seven wells that are being drilled in 2015 at its key Goudron asset in Trinidad. And, with LGO Energy having recently received CEC approval from the Trinidad and Tobago authorities for the drilling of 30 additional wells at the Goudron field, further drilling programmes could also be on the cards.

Clearly, LGO Energy is being hurt by a lower oil price. However, with further increases in production likely and sound management of costs, the company should be economically viable in a low oil price environment. As such, it appears to be worthy of purchase ahead of further encouraging news flow.

Similarly, oil services company Petrofac (LSE: PFC) also looks set to offer enticing capital growth over the medium to long term. A key reason for this is its income appeal. Next year, Petrofac is expected to yield 5.1% and, with dividends being covered 2.3 times by profit, there is tremendous scope for an increase in shareholder payouts even if profit growth does disappoint.

Such an impressive yield could hold great appeal for income-seeking investors, which has the potential to increase demand for Petrofac’s shares and push their value higher. On this front, there is scope for a major upward rerating, since Petrofac trades on a forward price to earnings (P/E) ratio of just 8.5.

Meanwhile, Xcite Energy (LSE: XEL) is an oil exploration company with considerable long term potential. Its Bentley field in the North Sea is a very appealing asset and could lead to impressive levels of profitability for the business in the medium to long term. And, while the company’s share price has disappointed thus far in 2015, with it falling by 30% year-to-date, it now trades on a price to book value (P/B) ratio of just 0.37, which indicates that a wide margin of safety is on offer.

However, in the short run, the weak oil price makes exploration stocks less appealing – especially since Xcite Energy will require financing to fund its future development. And, with North Sea costs generally being higher than elsewhere in the world, Xcite Energy may struggle to invigorate investor sentiment in the near term. As such, while it may perform well in the long run, its share price may come under pressure in the months ahead.

Of course, there are a number of stocks besides LGO Energy and Petrofac that could be worth buying right now and, with that in mind, the analysts at The Motley Fool have written a free and without obligation guide called 1 Top Small-Cap Stock From The Motley Fool.

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