While the energy sector has been an underperforming sector for much of the last year, it does not necessarily mean that there is a lack of long term potential. In fact, for investors who can live with above-average volatility over the coming months, now could prove to be a great time to buy a number of energy stocks that continue to have bright futures but which now trade at very appealing valuations.
And, with the price of oil having steadied somewhat after its vast decline, investor sentiment in the energy sector could be on the up. Could these three energy plays be the right ones for you to take advantage of growing momentum in the sector? Or, are there better opportunities elsewhere?
Falkland Oil And Gas
Today’s update from Falkland Oil And Gas (LSE: FOGL) is positive news for the company, with its shares rising by over 2% as a result. The release announced that the technical problems relating to the controls for the Eirik Raude’s blow-out preventer that have caused a delay to the company’s drilling programme have now been resolved. As such, the company estimates that it will take around two weeks for the Isobel Deep Well to be completed, before it is used in other locations also part-owned by Falkland Oil And Gas.
Clearly, Falkland Oil And Gas is a relatively volatile company, since it is an oil explorer rather than producer. And, looking ahead, its share price performance will be highly dependent upon the success of its drilling programme, but with sound finances and partnerships with larger firms such as Premier Oil, it seems to be a relatively appealing energy play for investors who are not risk averse.
Rockhopper Exploration
Today’s news regarding the Eirik Raude technical fix is also good news for Rockhopper (LSE: RKH), since is owns 24% of the Isobel Deep Well (versus 40% for Falkland Oil And Gas). Like Falkland Oil And Gas, it remains a relatively high risk energy play, although it too has decent finances with, for example, its cash balance of around $75m being sufficient to cover the current drilling programme in the region, which is believed to be costing the company around $25m.
Looking ahead, Rockhopper’s share price is something of a binary trade. If the drilling programme is successful then strong gains may lie ahead, while disappointment could lead to a sharp decline in its valuation. However, for an oil exploration company, it is well funded, has spread the risk with different partners and, while the Argentine government may threaten legal action, Rockhopper could prove to be a worthwhile holding over the medium to long term.
IGAS
Shares in IGAS (LSE: IGAS) are up by 15% today as the company’s CEO, Andrew Austin, has been replaced by CFO, Stephen Bowler. The change in leadership coincides with major change at the company, with its farm-out to INEOS being completed and the onshore producer set to receive £30m from the chemicals company as well as a fully funded work programme that could be worth as much as £138m.
Clearly, there is huge potential for shale gas in the UK, with IGAS having already acquired significant, high quality licences and, with it cutting costs and staffing numbers this year, its cost curve has fallen substantially. This is good news for its short term profitability and, with its most recent trading update showing that the company is on-track with its longer term strategy, now could be a prudent time to buy a slice of it.