With the oil price having come under severe pressure in recent months, I’m considering the investment prospects of BP plc (LON:BP) (BP.L), Royal Dutch Shell Plc (LON:RDSB) (RDSB.L), Tullow Oil plc (LON:TLW) (TLW.L) and Premier Oil PLC (LON:PMO) (PMO.L). Could they deliver successful recoveries?
The BP share price may remain volatile in the near term in my view. The company’s dependence on the oil price may mean that investor sentiment remains weak, with black gold showing only fleeting signs of a sustained recovery since October.
With BP having a dividend yield of over 6%, I think that it could offer good value for money over a long-term time horizon. However, it may continue to underperform the FTSE 100 in the near term in my opinion.
Shell’s strategy could help it to deliver improving financial performance in future years. Its asset disposal strategy may lead to a more efficient business which is better able to focus on its core opportunities. It may also reduce leverage and put the company in a stronger financial position.
With Shell set to deliver improving free cash flow, I feel that it could offer income investing opportunities over the long run. While relatively risky, I’m optimistic about its potential rewards over future years.
Tullow Oil’s share price has fallen heavily in recent months so that it now has a P/E ratio of around 9. In my view, the company has a sound strategy that is focused on increasing production and reducing debt. However, it remains a relatively risky share within a volatile sector to my mind.
I wouldn’t be surprised if investors continue to adopt a cautious stance towards Tullow Oil. But, should the oil price recover, it could deliver relatively high rewards over future years.
Premier Oil has been able to put in place what I believe is a sound strategy. It has focused on efficiency and reducing its debt levels through improving free cash flow. While this has improved its financial standing in my opinion, it continues to be relatively risky in my eyes.
As a result, I think the Premier Oil share price could be relatively volatile when compared to the wider sector. It could deliver a recovery in the long run, but it may take time for investors to become more confident about the wider sector following a 35%+ decline in the oil price since the start of October.