The oil and gas industry remains one of my favourite places to invest just now, and that’s why I’m focusing on the investment potential of BP plc (LON:BP) (BP.L), Premier Oil PLC (LON:PMO) (PMO.L), Tullow Oil plc (LON:TLW) (TLW.L), Royal Dutch Shell Plc (LON:RDSB) (RDSB.L) and Hurricane Energy PLC (LON:HUR) (HUR.L).
BP’s asset base may be smaller than it was prior to the 2010 oil spill. However, I believe it remains sufficient to provide improving profitability for the company – particularly as it moves on from the financial cost of the event. With the prospect of improved financial performance and a 6% dividend yield, BP remains one of the most appealing income stocks in the FTSE 100 in my view.
Premier Oil’s update yesterday showed that the company continues to make good progress with its strategy in my view. Its production is set to increase again in 2018, and this could help to transform its financial performance over the medium term. Premier Oil may lack the diversity of larger peers, but with debt reduction ongoing and its profitability moving higher, it could perform relatively well.
Tullow Oil is also seeking to increase its production while reducing its debt levels. This seems to be a sensible strategy to pursue while the oil price remains at a low ebb and investor confidence is low. With Tullow Oil forecast to increase its EPS in the current year, it has a PEG of around 0.2 at the moment. While perhaps at the riskier end of the investment spectrum, I believe the stock has upside potential.
Shell’s diversity and financial strength make it one of my preferred resources stocks at the moment. The company is on track to reduce leverage, with its cash flow expected to increase over the next few years. While there are concerns that it may have overpaid for BG, I feel it provides Shell with a dominant position in the attractive LNG market. This could be an additional catalyst for growth in the long run.
Hurricane Energy is expected to produce first oil from its Lancaster EPS in 2019. This could have a positive impact on the company’s stock price. Sure, there has been uncertainty about its management team and as an exploration stock with a less extensive asset base than some sector peers it may be higher risk. However, Hurricane Energy could post high returns in my view – particularly if the oil price increases.