I’m upbeat about the long term prospects for the oil and gas industry. I feel stocks such as Premier Oil PLC (LON:PMO) (PMO.L), Tullow Oil plc (LON:TLW) (TLW.L), Hurricane Energy PLC (LON:HUR) (HUR.L) and BP plc (LON:BP) (BP.L) could perform relatively well in future, in spite of their relatively mixed track records in the past.
I believe demand for oil could gradually rise due in part to increasing demand from the emerging world. Although supply levels may remain high and there could be a supply surplus over the medium term, I believe there is scope for this to narrow to at least some degree. Part of the reason for this is rising demand, but also the potential for lower production from OPEC.
I’m more upbeat about Premier Oil after its oil discovery. I think it could enable the stock to deliver rising profitability over the long run, as well as improve investor sentiment. Likewise, I feel Hurricane Energy could report improved share price performance. I think it has a good strategy and although its recent share price performance has been disappointing, I believe there is scope for an improvement in future.
Tullow Oil is another stock I feel optimistic about. It is seeking to reduce debt levels in order to create a more sustainable and possibly low risk business model. As well as increased production, I think this could lead to better cash flow and profitability further down the line. Similarly, I believe BP’s high dividend yield, strong asset base and diverse operations make it one of the better risk to reward opportunities within the resources sector.
Although I think volatility could be high and risks are also above average, I’m optimistic about the oil and gas industry for the long term – particularly stocks such as Premier Oil, Tullow Oil, Hurricane Energy and BP.