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.

Petro Matad’s gains have been driven by the decision of the company’s partner in Mongolia to withdraw from a joint-venture between the two firms. The withdrawal will lead to the company receiving compensation that will be, according to management, “highly material” to Petro Matad. What’s more, not only will the company receive compensation from its partner’s decision to exit the JV, but Petro Matad’s stake in the joint venture production blocks will soar to 100% from the current 22%.

Larger partner 

Petro Matad’s now ex-joint-venture partner is an “affiliate” of oil giant Royal Dutch Shell PLC. According to Petro Matad’s management, the decision by the partner to pull out was based on Shell’s optimisation of its own portfolio, and isn’t related to the technical prospects for the blocks.

The oil assets in question are production sharing contracts covering blocks IV and V in western and central Mongolia. Under the terms of the farmout agreement signed between Shell’s affiliate and Petro Matad in April 2015, Shell had the option to exit the agreement at certain points in the development process, as long as compensation was paid.

As of yet, it’s impossible to tell how much compensation Petro Matad will receive from its larger partner’s change of mind. However, while the settlement is likely to be “material” it could well be insignificant given that Petro Matad now has to foot the bill for the development of blocks IV and V. 

During the first half of this year, the company is conducting seismic programmes in blocks IV and V and has plans to drill two test wells on its acreage back to back in 2017. Existing seismic data has already shown that there are multiple potential drilling targets for the company to aim for.

Time to buy?

So, should investors buy into Petro Matad’s recent rally as the company prepares to receive a game-changing lump sum from its former JV partner?

Well, as with all early-stage oil and gas exploration companies, Petro Matad is a high-risk, high-reward play. While any compensation should alleviate any near-term concerns about the state of the company’s balance sheet, there’s still a lot to do before Petro Matad can call itself a fully functioning oil company that can generate enough cash to keep the lights on without asking shareholders for additional funds.

All in all, it comes down to your own personal investment preference. If you’re willing to take the risk with a micro-cap oil explorer, and will do so as part of a well-diversified portfolio, Petro Matad could be an attractive bet. But this is one company that isn’t suitable for widows and orphans.