Are Rockhopper Exploration Plc, Roxi Petroleum plc And Lamprell Plc Set To Post Stellar Returns?

Shares in Roxi Petroleum (LSE: RXP) have fallen by over 7% today after the company released an update on operations at its flagship BNG asset. The main reason for their fall is that two of its deep wells (A5 and 801) have encountered blockages which have not allowed flow tests to take place. The blockages have been caused by the accumulation of unrecovered heavy drilling fluids becoming set in the oil pipe and this has prevented unrestricted flow testing, with blockages occurring after a few hours flow.

Although disappointing, Roxi expects that as these fluids come to the surface the periods of oil flow at deep well A5 should increase until the oil flows naturally on an unrestricted basis. Meanwhile, at deep well 801 Roxi believes the best way to tackle the problem is via a prolonged wash using less dense mud injected under pressure which is intended to lessen the density of the drilling fluids.

Of course, the use of extremely dense drilling fluids was required in order to control the high pressure encountered in drilling the deep wells. But, with such fluids being finite, Roxi remains optimistic regarding the quality of the oil from its deep, as well as shallow, wells. Regarding the latter, no blockages have been encountered and Roxi continues to make encouraging progress, with a third test interval at shallow well 143 detecting oil.

Clearly, today’s update is disappointing for investors in Roxi as it signifies a delay to the planned flow tests which are due to take place. However, such challenges are perhaps to be expected for oil exploration companies and, as such, the long term investment case for the business does not appear to have been significantly altered. For less risk averse investors, Roxi’s price to book value (P/B) ratio of 1 holds considerable long term appeal.

Meanwhile, the outlook for oil support services company Lamprell (LSE: LAM) is also relatively bright. Certainly, it is forecast to post a fall in earnings of 41% in the current year but, with a return to growth being pencilled in for next year, now could be a good time to buy a slice of it.

That’s because Lamprell’s valuation appears to fully reflect the short term challenges which it faces and, while investor sentiment could come under further pressure once its 2015 results are announced, a price to earnings (P/E) ratio of 9.4 indicates that there is significant upward rerating potential.

In addition, Lamprell also has upbeat income potential. Clearly, a yield of 2.4% is hardly enticing, but with Lamprell having a dividend payout ratio of just 22%, there is scope for rapid rises in shareholder payouts, with next year’s planned dividend rise of 38% being highly encouraging for Lamprell’s investors.

Also having long term total return appeal is Rockhopper (LSE: RKH), with its planned merger with Falkland Oil & Gas having the potential to create a more financially sound business through which to develop a relatively high quality asset base. And, with Rockhopper having enjoyed a considerable amount of success with its 2015 drilling campaign, it appears to be well-positioned to enter 2016 even though the outlook for the oil price is relatively downbeat.

For less risk averse investors, Rockhopper’s current P/B ratio of 0.5 indicates that there is considerable upside potential. And, with the company paying just at 11% premium to Falkland Oil & Gas’ already discounted share price, the combined group appears to offer good value for money and a relatively appealing asset base with, of course, a high degree of volatility likely over the medium term.

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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.