In the last year, the BP (LSE: BP) share price has beaten the FTSE 100 by 22%. The oil major has enjoyed a stunning period of growth after what has been a tough period for its investors. The 2010 oil spill hurt its financial performance and investor sentiment, while a low oil price exacerbated its challenges.
Now though, an improving outlook could be ahead for the company and the wider industry. Could it therefore be worth buying alongside this smaller oil and gas industry peer?
Improving prospects
The main catalyst for a 24% rise in the BP stock price in the last year has been the gains made by the oil price. Brent Crude, for example, is up by 50% during the last 12 months, rising to its highest level since 2014. The prospects for a more balanced relationship between demand and supply have improved, with the supply glut of recent years now appearing to be coming to an end.
Clearly, there is scope for further volatility in the oil price. Even though demand levels remain robust, new technology in the form of electric vehicles could hurt the industry’s long-term outlook. But over the medium term, stocks such as BP appear to have bright futures. For example, the company is forecast to post a rise in its bottom line in both of the next two financial years. And since it offers a dividend yield of around 5.3%, it seems to have a wide margin of safety.
Risk/reward
With BP having a large and diverse asset base, it may be able to survive an industry downturn better than many of its sector peers. And with its recent update highlighting the progress being made in its various divisions, as well as the investment it is making in new projects, now could be an opportune moment to buy it. Outperformance of the FTSE 100 could continue and lead to high total returns for its investors.
A smaller oil and gas company which could also be worth a closer look for less risk-averse investors is Petro Matad (LSE: MATD). This is a Mongolian oil explorer which released its final results on Monday.
Changing strategy
Recent months have seen significant change take place at Petro Matad. The company experienced a tough 2017, failing to deliver on its drilling programme. This was largely due to the drilling rig contracted for the programme being unable to achieve the required certification to international standards to allow for the well to be completed prior to colder weather setting in.
However, under a new CEO, the company has been able to raise $16.8m in order to deliver on what may prove to be a more impactful drilling programme in the current financial year.
Clearly, any oil exploration company is a relatively risky proposition, since its share price performance is highly dependent upon the success of its drilling programme. But with an improved financial position and what seems to be a sound strategy, Petro Matad could offer high returns in the long run. While potentially volatile, it could be of interest to less risk-averse investors.