The oil price has enjoyed a positive year and I’m looking at the investment prospects for BP plc (LON:BP) (BP.L), Premier Oil PLC (LON:PMO) (PMO.L), Hurricane Energy PLC (LON:HUR) (HUR.L), Royal Dutch Shell Plc (LON:RDSB) (RDSB.L) and Tullow Oil plc (LON:TLW) (TLW.L).
BP has a sound asset base in my view. Sure, it’s smaller than it was prior to the 2010 oil spill, but I still feel it has the capacity to deliver improving performance for the company. BP has a dividend yield of 6%, which I find appealing at a time when inflation has moved sharply higher. Therefore, I think the stock could have investment appeal for the long run.
Premier Oil also seems to have a bright future. The company has rationalised its asset base in recent months, while investing in its long term growth prospects. It has also been able to cut costs in the last few years, while taking advantage of lower asset prices to expand its diversity and production potential. While relatively risky, I feel Premier Oil could have upside potential.
Hurricane Energy has experienced a challenging year. Its management team has changed, while investor sentiment has declined markedly since the start of the year. However, with a successful capital raising in the summer and the prospect of first oil production over the medium term, I think the Hurricane Energy share price could mount a successful recovery.
Tullow Oil has been able to increase production at a time when some investors were becoming concerned about its balance sheet strength. Alongside a capital raising, higher production could cause its debt levels to decline. This may create a more sustainable growth outlook for the company. With Tullow Oil set to move into profitability next year I think it could perform well as an investment.
Shell is my top pick in the oil and gas sector. There may be faster growing companies on offer, but I think it has a good risk to return ratio. With leverage set to fall as the company’s free cash flow increases, its sustainability seems high. There may also be scope to pay a higher dividend, which could make Shell an even more appealing income stock at a time when it already has a dividend yield of around 6%.