This company might not be a household name, but that hasn’t stopped it. Beazley (LSE: BEZ) is one of the largest specialist insurance businesses in the UK. And with operations around the world, the business is truly a play on not just UK, but international economic growth as well.

Over the past 10 years, shares in the company have produced a total annual return for investors of 21.7%, turning every £1,000 invested into £7,127.

And I believe that this outstanding record of performance is set to continue.

Explosive growth 

After a rough 2017, when some of the biggest hurricanes ever to hit the United States caused billions in damage, which insurers like Beazley had to pick up the bill for, analysts are expecting the firm to return to growth this year. Earnings per share (EPS) are projected to rise 42% to $0.34 (26p) giving a forward P/E of 22. 

Growth is only expected to accelerate for 2019. Analysts have pencilled in EPS growth of 64% to $0.56 (43p). Based on this estimate, the stock is trading at a 2019 P/E of 13.4.

As well as breakneck earnings growth, Beazley has attractive dividend credentials. The dividend yield of 2.1% might not be the highest around, but the payout of $0.16 (12p) per share is covered twice by EPS. To me, this high level of cover suggests that the distribution is shielded from earnings volatility — one of the critical factors I like to consider when evaluating a firm’s dividend potential. Analysts are expecting the payout to hit $0.22 (17p) next year, providing a more lucrative yield of 2.9%.

Overall, looking at the company’s record of producing returns for investors, coupled with its growth outlook, I believe Beazley won’t let you down.

Low risk, high potential reward 

If you’re looking for an investment with more growth potential for your portfolio, you might want to consider Rockhopper Exploration (LSE: RKH). 

There’s lots to like about this oil minnow. For a start, the company is one of the few early-stage oil businesses with positive free cash flow.

According to half-year figures, published today, Rockhopper generated cash flow from operations of $4.9m during the first six months of 2018. With cash operating costs of $11 per barrel of oil produced, this looks set to continue.

Rockhopper’s funds are essential to support the development of its flagship Sea Lion development in the Falklands. Management is targeting year-end net cash of $30m (down from $46.4m at the end of the first half) and is planning to secure further financing for the prospect towards the end of 2018. Its partner on the $1.5bn project is Premier Oil which is pushing ahead with the development of Sea Lion. It could yield as much as 1.7bn barrels of oil in the best case.

What I like about Rockhopper is that the company is already self-sustaining but has huge upside potential if Sea Lion proves to be as good as expected. If everything goes to plan in the Falklands, Rockhopper could be a multi-bagger investment for shareholders.

Off the back of this rally, a lot of oil stocks have already recovered significantly from their 2016 lows. However, not all companies have recovered to the same degree. Here are three stocks that I believe could have further to go.

Uncertainty prevails 

Tullow Oil (LSE: TLW), Enquest (LSE: ENQ) and Rockhopper (LSE: RKH) all seem to have missed out on the wider oil sector rally over the past 12 months. It appears the reason why investors have been slow to return is due to the uncertainty hanging over these businesses.

Tullow and Enquest are both struggling under an enormous mountain of debt while Rockhopper’s future is dependent upon the development of the Sea Lion Field in the northern waters of the Falkland Islands.

Rising oil prices are already starting to lift the uncertainty for Tullow and Enquest.

Last year, Tullow returned to profit for the first time in three years, and for 2018 the producer is projecting free cash flow generation from operations of $650m — a significant figure. During the first half, the group churned out $300m of cash pushing net debt down to $3.1bn.

Compared to Tullow’s market value of £3bn ($3.8bn) this debt mountain is enough to scare away even the most risk-tolerant investors. Still, at the beginning of 2018, the group had net debt of $3.5bn, so the balance is rapidly moving in the right direction. Although a legal dispute with rig operator Seadrill has cost the company $250m, I expect to see a substantial reduction in net debt for the firm at the end of 2018.

Enquest is heading in the same direction. The firm is projecting production to hit between 50,000-58,000 boe per day in 2018, that’s up from 37,000 boe per day in 2017. 

Increased output at a higher oil price should enable the company to start chipping away at its near $2bn debt pile. Indeed, management is confident that higher output, coupled with low levels of capital spending will allow the group to do just that. 

Last year, City analysts predicted that Enquest could generate free cash flow of $700m a year at the higher output rate, which would be more than enough to reassure investors that the company can maintain its obligations to creditors. 

Project green light 

As Enquest and Tullow start to reduce debt, sentiment towards the two companies should improve as the level of risk reduces. I believe this should drive a re-rating in the shares pushing them significantly higher.

Meanwhile, the rising price of oil makes it more likely that Rockhopper’s Sea Lion project will get the green light from its development partner Premier Oil (Rockhopper currently owns 40%). Premier is also set to report a jump in cash flow this year, giving the group more capital to fund development projects.

If all goes to plan, Rockhopper’s management has stated that it believes Sea Lion could be sanctioned by the end of 2018, which would be a significant development for the company. Investors are bound to return when this colossal project gets the green light. After construction begins, it will only be a matter of time before the profits start flowing. 

Currently, the conditions are perfect for the company. After years of slashing costs and investing heavily in production capacity, this year the group is well placed to produce healthy cash flow from operations, which should allow it to reduce debt and soothe concerns about its balance sheet substantially. 

A transformational year

Alongside its full-year 2017 figures, Tullow said it expects production in 2018 to be between 86,000 to 95,000 barrels per day, compared to last year’s 94,700 bbl/d. While the lower production figure is disappointing, higher oil prices should more than make up for the fall. 

For example, last year the average realised oil price for the company was $58.3 bbl. Today, the price of Brent crude is nearly 20% higher at just under $70 bbl. What’s more, Tullow reported a 22% drop in its underlying cash operating cost to $11.1 bbl last year, which only adds to the investment case. 

It is also unlikely that Tullow will see a repeat this year of the operational problems that it experienced in 2017. Due to a maritime boundary dispute between Ghana and the Ivory Coast, Tullow was unable to drill wells at its flagship Ten field off the coast of Ghana. The situation has now been resolved and the group has plans to begin “a multi-year incremental drilling programme” this year.

Cash cow 

All of the above indicates to me that Tullow is on track to beat last year’s free cash flow generation of $543m, giving it scope to make a substantial dent in its net debt balance of $3.5bn as reported for the end of last year. And as group fiscal stability improves, I believe the market will award the Tullow Oil share price a higher valuation.

As well as Tullow, I believe that higher oil prices also bode well for small-cap explorer Rockhopper Exploration (LSE: RKH).

Binary bet 

Rockhopper is essentially a binary play on the colossal $1.5bn Sea Lion field development in the Falklands. This project, which is operated by Premier Oil was put on ice as the price of oil has languished, but with prices heading back to $100 bbl, it’s becoming more likely that Premier will be able to access the funds to press ahead. 

Rockhopper expects the final decision on development will be made towards the end of 2018.

While the firm waits for Premier to start Sea Lion’s development, Rockhopper’s production base in the Greater Mediterranean is keeping the lights on. 

According to the group’s full-year figures, published today, production from this region averaged 1,200 bbl/d during 2017, producing revenues of $10.4m and a cash flow of $1.6m. There’s also $50.7m of cash on the balance sheet to help fund any future developments as well “new venture opportunities” to help improve production and cash flow.

However, with the oil price having risen significantly in recent months, the prospects for the industry appear to be relatively positive. Certainly, volatility may continue to be high, but there could be capital growth potential on offer. With that in mind, here are two stocks that could be worth buying today.

Improving outlook

Reporting on Monday was Rockhopper Exploration (LSE: RKH). The oil and gas company provided an update on its Greater Mediterranean portfolio, with it delivering improved production from Abu Sennan. Current production is 4,000 barrels of oil equivalent per day (boepd), with the company seeing continued strong realised pricing. It has been able to sell oil from the area at a small discount to Brent.

Looking ahead, the company is set to engage in an active exploration and development drilling programme across both of its licenses in Egypt. It is seeing an improvement in the payment situation in Egypt, with it having reduced receivables significantly. Its historic liabilities to Beach Energy are also now satisfied.

While Rockhopper Exploration continues to be a relatively speculative business which could offer volatile performance, its capital growth potential could be high. If the oil price continues to increase or at least remains close to current levels, then the company’s forecasts may improve. This could lead to impressive future returns for less risk-averse investors.

Return potential

Also offering the potential for improving share price growth over the long run is Soco International (LSE: SIA). The company has experienced a relatively challenging period, with its financial performance coming under severe pressure. The Vietnam-focused company has endured a number of challenges in recent years, with a lower oil price making its trading conditions even more difficult. However, under its current strategy it appears to have the potential to generate improving financial performance.

Encouragingly, the company appears to have a relatively strong balance sheet. This could provide it with a degree of stability in what remains a relatively uncertain industry. And with it having no debt at the present time, it may offer less risk than some of its sector peers.

As mentioned, a higher oil price would be likely to have a positive effect on the oil and gas industry. With Soco in the process of developing its asset base through continued investment, the prospects for the business appear to be relatively bright. As such, and while its share price performance could be relatively volatile, now could be a good time to buy it for the long run.

The company has been slowly chipping away at its debt and although it still stood at $2.7bn at the interim stage, it’s coming down as Premier targets a leverage ratio of three times EBITDA by the end of 2018.

The Catcher project is still on schedule for the delivery of first oil in December, and that should generate more cash for reducing debt further. And total production is expected to meet Premier’s raised target of 75-80 kboepd for the full year.

On top of that, there’s a new agreement signed for the supply of gas to Vietnam, and the sale of the Wytch Farm field to Perenco UK has been finalised for a total value of $275m. 

Shares up

Since a 2017 low in June, Premier shares have regained 59% to 70p, and what’s most likely to be driving that is an uptick in the oil price. After being stubbornly stuck at around the $50 level for a couple of months, it’s pushed up to $58 per barrel as I write, and every uptick should provide a geared-up benefit to Premier Oil.

It’s too soon to assume higher long-term oil prices, and a loosening of OPEC restrictions could possibly lead to a new short-term supply glut. But I’m optimistic we’ll see a price of around double the low point of early 2016 before too much longer — about $65.

There’s still a risky year ahead, but I really see my glass as more than half full now.

A winner too?

If Premier Oil recovers as well as I hope, I can’t help feeling that Rockhopper Exploration (LSE: RKH) could very well share in the success. The much smaller explorer has had its shares battered during the oil price crisis, as have many of its sector compatriots. At 23.4p we’re looking at an 85% fall over five years — and that’s one of the smaller oilies that I thought would do well back then.

Rockhopper is expected to record small losses for this year and next, but first-half results revealed cash resources at 30 June of $62.5m and no debt — with a $337m development carry from Premier for the development of Sea Lion Phase 1 playing a part.

And that’s the big connection — Premier took a 60% interest in the Sea Lion field north of the Falkland Islands in 2012, with Rockhopper retaining the remaining 40%. And Premier is aiming at 2018 for a sanction date for the project.

Relatively safe

Meanwhile, the partners are working on the financing for it, via a proposed $800m senior debt deal.

Rockhopper also has interests in a number of other resources around the world, which should lessen its risk compared to some other smaller explorers for whom a single asset could be make or break.

And, as the oil price has been creeping back up again, so has the Rockhopper share price. Since the middle of August we’ve seen a 29% gain, largely echoing the rise in the price of a barrel of crude from that $50 level to $58.

Could 2018 be the year of the great oil stock comeback? I do hope so.

It stated that the company’s offshore Ireland operations have continued to progress. The well penetrating the Paleocene Druid prospect within the pre-drill depth prognosis was safely drilled to its section target depth. However, preliminary analysis indicates that the Druid prospect comprises a porous water-bearing reservoir. This means that the company will now press ahead with an assessment of the deeper Lower Cretaceous Drombeg exploration target. It is situated around 2km beneath Druid, and has a resource potential of around 2m barrels of oil versus Druid’s 3m.

Looking ahead

Clearly, Providence Resources faces a more difficult future after its update. Investors are likely to remain disappointed with the company’s progress regarding the Druid prospect in the short run. This means that there could be further share price falls ahead. That’s particularly the case if its update regarding the Drombeg prospect fails to be positive.

Of course, oil and gas exploration companies such as Providence Resources are by their very nature highly volatile and risky entities. Their share price performance is largely dependent on news flow and the success of their drilling operations. In some cases, this can lead to significant share price growth. However, negative news tends to be received extremely poorly by investors due to smaller exploration companies lacking the diversity of their larger peers.

Sector appeal

Despite today’s share price fall, Providence Resources is still down only 12% in the last year. This is a relatively positive performance compared to some of its sector peers. Clearly, the outlook for the industry is challenging, and a low oil price may remain in the short run.

In the long run though, exploration companies such as Providence Resources and Rockhopper (LSE: RKH) could deliver improved performance. Both stocks could benefit from a rising oil price, with demand from the emerging world in particular expected to increase. At the same time, a reduction in global supply from OPEC and non-OPEC countries may lead to a fall in the supply surplus which has been present in recent years. This may lead to higher industry-wide profits and higher valuations.

Stock potential

Of course, Providence Resources and Rockhopper remain lossmaking at the present time. In the case of Rockhopper though, it has built a range of assets in numerous territories which means that its asset base may be less risky than those of some of its sector peers. Furthermore, its production volumes could increase in future and allow it to directly benefit in a potentially higher-oil-price environment.

With both stocks being relatively small, they are of a high-risk nature. Therefore, they may remain highly volatile in future and may only be worthy of consideration alongside larger, more financially stable, sector peers within a portfolio. However, with high potential rewards, they could be worthy of a closer look for less risk-averse investors.

A combination of OPEC’s output cut and efficiency gains achieved by oil producers since 2014 means that the oil industry is now ready to start investing again. It looks as if oil prices have stabilised and cost cuts have helped reduce project break-even points to levels that are appealing in the current environment. As a result, Barclays expects total E&P capital spending to rise 7% this year with offshore production capacity of around 15bn expected to be sanctioned.

Time to revisit the sector?

The decision by oil companies to start investing again is a signal to investors that it might be time to revisit the oil sector again. 

And two companies that could generate huge returns for investors this year as confidence returns are Premier Oil (LSE: PMO) and Rockhopper Exploration (LSE: RKH).

Red flag 

The biggest red flag currently preventing investors from regaining confidence in Premier is the company’s ongoing refinancing. For more than a year now management has been trying to negotiate favourable terms for the company’s debt refinancing.  

As of yet, little news on the deal has been released to the market. However, yesterday the company announced that it would finalise the agreement with creditors within weeks. But once again, management held back from revealing any key details. With this being the case, the prospect of the upcoming refinancing will hold shares in Premier back during the near term. 

Once a debt agreement is in place, Premier’s shares have the potential to spring back to 200p. Total production last year from Premier’s assets reached a record 71,400 barrels of oil equivalent a day, up nearly a quarter year-on-year the group is guiding towards production of 75,000 barrels a day during 2017. 

Assuming everything goes to plan in the next two years, City analysts expect Premier to report earnings per share of 29p for the year ending 31 December 2018. Based on this forecast, shares in the company are currently trading at a forward P/E 3, and any guidance that the company is indeed on track to hit this target would likely send the shares shooting higher this year.  

Joined at the hip

Any good news from Premier is also good news for Rockhopper. The two oil producers are partners on the Sea Lion field in the South Atlantic, the development of which has been put on hold thanks to the oil price crash. Premier’s refinancing should be the first stage of getting the development of this project back on track. 

Premier is looking for a buyer for part of its stake, which is unlikely to emerge until the company’s refinancing is complete. With a buyer in place, the £1.2bn Sea Lion project may finally start to move ahead. When the project gets the go-ahead, City analysts believe shares in Rockhopper could be worth as much as 123p, although a more conservative estimate of 80p per share is also in place. As soon as Premier gives the green light on Sea Lion, it’s probable this target will be hit pretty quickly.

Most small-cap oil companies don’t succeed, but those that do can generate huge returns for early investors if everything goes to plan. Finding these opportunities is the key. Investments where you can make 10 or 20 times your initial investment in the best case are worth taking a bet on. Of course, not every opportunity like this will work out but those that do more than make up for those that fail.

Pantheon Resources (LSE: PANR) and Rockhopper Exploration (LSE: RKH) are two such companies. Both have the assets in place to generate impressive returns for shareholders over the long-term, but at current prices is it worth getting involved? Does the potential reward make up for the risk taken on?

Double again? 

As the rest of the oil sector has languished, shares in Pantheon have charged higher this year. 

Year-to-date shares in the company are up by 260% as the firm has reported multiple successes on its acreage in Polk County, Texas. However, alongside the successes, there have also been failures. At the beginning of September shares in the company dropped by more than 40% after the company announced that its second well in Texas had to be plugged and abandoned. This dramatic markdown of Pantheon’s shares made it clear that the value of the company may have been too generous for the risk still associated with it. 

Assuming everything goes to plan going forward, City analysts expect the company to report earnings per share of 4.6p for the year ending 30 June 2017, which implies a valuation of 22.2 times forward earnings. This rich valuation coupled with the exploratory work Pantheon still has ahead of it signals that there’s plenty of risk ahead for the company’s shares and as a result, the potential upside may be limited.

Terrible year but plenty of potential 

Compared to Pantheon, shares in Rockhopper have had a downright terrible year. During the past 12 months shares in the company have lost a third of their value, but at current levels they may be attractive for long-term investors.

Rockhopper’s value is tied up in the company’s assets, specifically in the Sea Lion Complex. It’s thought that this asset contains 517 mmbbl of resources and has a break-even cost of $45 per barrel. So, even in the current environment where oil prices are struggling to move above $50 a barrel, Sea Lion will be profitable. 

City analysts estimate that Rockhopper’s net asset value stands at around 93p per share, more than 200% above current levels. There’s $63m of cash on the balance sheet as well to protect against the downside. What’s more, if the oil price returns to $70 or $80 a barrel this net asset value could see significant upgrades. In other words, Rockhopper has the sort of attractive risk/reward profile small-cap oil investors require. 

Overall, Rockhopper looks to be the better investment of these two early stage small-cap producers. 

Retirement products in demand

Specialist retirement company JRP Group (LSE: JRP) released half-year results today, which sent the shares up nearly 20% to 115p. The group was formed through the merger of Just Retirement and Partnership Assurance in April this year. Synergies from the merger have already totalled £15m and the synergy target for the end of 2018 has been increased 13% to £45m. This is obviously a huge saving over the next few years and much higher than initial expectations. 

The company is doing well and reported an operating profit of £51m along with a £226m profit after tax for the first six months of the year. Group CEO Rodney Cook stated that “our new business margin is starting to demonstrate the opportunity we have for potential further improvement as we deliver the cost synergies.” 

The stock received another boost this morning as Numis reiterated its 200p price target on the stock, which indicates that there’s a significant amount of upside from its current 115p valuation. If the business continues to perform well and more synergies can be squeezed out of the merger then the 200p valuation could become a reality. 

Governmental co-operation

Rockhopper Exploration (LSE: RKH) received some great news today that goes a long way in de-risking the Falkland Islands from a political standpoint. The British Government and the Government of Argentina have agreed to an improved relationship through closer co-operation on various matters. The governments “agreed to work toward removing restrictive measures around the oil and gas industry, shipping and fishing affecting the Falkland Islands in the coming months.” This will provide a great boost to the company as hostile rhetoric from the Argentinian government was becoming worrying. 

This news provides a further cause for celebration after Rockhopper’s half-yearly results. Yesterday the company announced that 2C oil resources in the Sea Lion Complex are now thought to be 517 mmbbl. The amount of investment required for first oil has also fallen to US$1.5bn (gross), which in turn has reduced the project’s break-even price to US$45 per barrel. This is good news for Rockhopper and shares are up 9% since the updated figures were released to the market yesterday morning. 

JRP and Rockhopper both seem to be on an upward trend and both have seen a great response to positive news. There’s a lot of upside in the shares and I think that both could be worth buying in the not too distant future. In the case of JRP it may be best to wait for a fall-back after the huge rise today. Rockhopper on the other hand has fallen over the last three months and it may be worth buying the shares if it suits your risk profile. 

Rockhopper’s progress in developing the Sea Lion development remains strong. During the six months to 30 June, FEED contracts for the development were awarded to a set of highly regarded contractors. Alongside this, Rockhopper has benefitted from the lower-cost environment present in the oil and gas industry. This has reduced its costs and has also caused the break-even oil price required to sanction new projects to fall.

The successful exploration campaign that was run by Rockhopper means it continues to believe in the commercial viability of the North Falkland Basin. In fact, Rockhopper is of the view that there are a billion barrels of recoverable oil and that they can be produced in multiple phases of development over the medium-to-long term.

Looking ahead, Rockhopper expects operating cash flow to broadly cover its overheads in future. It expects oil production for the remainder of 2016 to be around 1,500 boepd (barrels of oil equivalent per day) following its acquisition of Beach Egypt.

Is bigger better?

Rockhopper has considerable long-term potential and could turn around its 35% share price fall of the last year. However, it remains a relatively small company and with the outlook for the wider resources sector being highly uncertain, it could be a good idea to focus on a larger and more diversified peer such as Glencore.

Of course, Glencore is undergoing a period of intense challenges right now. Its debt levels were viewed as excessive by many investors and this caused its shares to come under severe pressure last year. However, the current strategy being employed by Glencore is allowing it to make rapid progress towards becoming less leveraged and more streamlined as a business. For example, it has made asset disposals, suspended dividends and reduced its cost base as it improves its overall business model.

Glencore is expected to return to profitability in the current year and then grow its bottom line by as much as 50% next year. This puts it on a price-to-earnings growth (PEG) ratio of just 0.6, which indicates that it offers 20%-plus upside.

Clearly, this is superior to Rockhopper’s valuation since Rockhopper is expected to remain lossmaking in each of the next two years. However, Rockhopper is an exploration company transitioning towards increasing production and so profitability is unlikely to be achieved for a number of years.

This doesn’t mean that Rockhopper should be avoided. It has 20%-plys upside given the strength and growth opportunities presented by its asset base. But with the outlook for commodity prices still uncertain, it may be prudent to stick to profitable, growing and cheap resources stocks such as Glencore. For these reasons, it is a better buy than Rockhopper at the present time since a 20%-plus return looks more likely and less risky.