Fortune favours the brave and investors who were bold enough to buy oil stocks at recent lows should have made a pretty penny. However, some companies have benefitted more than others. Can these three stocks help you play the next stage of the oil recovery?
Genel Energy
Pricier oil has done little to help troubled Genel Energy (LSE: GENL). While a barrel of Brent crude leapt from $27 to $44 from mid-January, an increase of more than 60%, Genelâs share price is actually down 15% to around 105p over the same period. Genel clearly has its own challenges, coping with haphazard payments from the Kurdistan Regional Government.
Genel has been bogged down in the long-running revenue-sharing dispute between the KRG and Iraq’s federal government. The money has started to flow recently, the latest payment totalling $13.08m for the Taq Taq field in March, a month when Genel also made average gross oil sales of 75,300 barrels of oil per day. Unfortunately, it is still owed more than $400m for previous production. Risk-on investors must understand that Genel isn’t a play on the oil price but something even more volatile, Iraqi politics.
Petrofac
The Middle East is also a key region for oil services specialist Petrofac (LSE: PFC) but it operates in less volatile areas and therefore benefits from cheaper local production costs, while avoiding most of the shooting. On 27 January, with the stock trading at 745p, I wrote that Petrofac “could be a relatively safe way to play the oil price fightback” and hey presto, today it trades at 900p, a rise of just over 20%. This is solid but not spectacular, given that a riskier play such as explorer Premier Oil is up 180% over the same period.
Petrofac isn’t rock solid. Last year costs on its Laggan-Tormore gas project in the Shetlands overran by hundreds of millions of dollars, and the termination of the shipyard contract to construct its JSD6000 deepwater multi-purpose vessel was another blow. The future looks brighter as these issues recede and the order book remains health, although the 5.2% yield is perhaps the bigger attraction.
Weir Group
Investors in Glasgow-based pump maker Weir Group (LSE: WEIR) have endured a rough ride, with the shares down 55% over two years due to falling demand for its mining, oil and gas end markets, particularly US shale. Even its supposedly resilient aftersales market was hit. In March, I said the tide was turning for Weir and, hey presto again, it has enjoyed smoother sailing lately, with the share up a breezy since 13% to today’s 1,123p.
Weir needs more than a higher oil price, it needs its customers to start investing again. Capital won’t start flooding into US shale again until the oil price hits at least $50 or $60, so there could be some way to go. Far-sighted investors might see this as an opportunity to take an early position, although given the risks I would have hoped for a cheaper valuation than 13.6 times earnings while the yield is a relatively low 2.67%.