Watch these oil shares in 2018
A lot of oil stocks still lag the recent surge in oil prices. Malcolm Graham-Wood tells us which ones could prosper over the next 12 months.
Any advice for investors in oil stocks over the next 12 months?
The usual advice is be agile. The old stocks will always move fairly in line with the oil price, although I'm not convinced that yet the oil prices in some of the favoured stocks that I've got in the back of this to have caught up with $60/65 oil yet.
But you have to be quick off the mark, if you see the oil price coming down or a disruption, you know, things are going to happen very quickly. As I said, I'm not convinced that one or two of the companies have yet caught up with the higher price.
One or two are doing quite well, but at $60/65, then the cost structure that the industry has managed to work at in the last two or three years, bringing cost down dramatically, these companies are making a lot of money now. And one or two big projects will be going ahead, which will mean cashflow is picking up for companies and you know, as I said, be agile, be careful, make sure you're on the case, look at the management and the companies that are going to raise money.
But in the main, I think the oil sector looks quite well set for the beginning of 2018.
What's your favourite oil blue-chip and why?
Well, I still prefer Shell (RDSB), it's got a better quality management and it's much stronger financially. I think it's really, really going to make out because of the high-risk strategy that made them take over BG right at the low point of the oil market. That will be coming home to roost for the others, it was a very big call by Shell, but now they've been able to work their long-term strategy around it, their financial strength, and with the oil price and the gas price being in very good nick at the moment, they're proving to be the one to beat.
Marginally ahead of BP (BP.) over here, and in terms of the US majors, I suspect still Exxon and Chevron are the ones to catch up on there.
How have your Bucket List tips performed this year?
The Bucket List has been a bit mixed this year. And if I'd known that the oil price was going to be $65 towards the end of the year, I'd have expected an even better performance. So, there are one or two disappointments in there. The ones that have done well have consistently delivered are ones like SDX, which has got a great pipeline of discoveries in North Africa.
We've got Faroe (FPM) who've come good, you know, they've got excellent quality of exploration and coming through in production. We've got Victoria Oil and Gas (VOG), which are consistently doing well producing power generation through their gas in Cameroon. And one or two other companies like Jersey Oil and Gas (JOG), which had a big discovery in the North Sea with the Verbier prospect with Statoil in the summer. It looked for a minute like it wasn't going to work, they went in with a side-track well, and I suspect they've raised money for the next year or so. And that is very much one to watch out for.
And, of course, there are a number which haven't performed as well, but will probably stay in the Bucket List for the next year when I do it at the end of January. The stocks that I'm thinking of are Hurricane (HUR) where they had to raise a large amount of money in the summer, and that was done for the development of the Lancaster EPS. I've just got back from Dubai where I'm seeing the FPSO being upgraded, and that's in very good nick, so I expect people to look forward to that with a lot of interest.
And we've got companies like Amerisur (AMER), which is quite ludicrous to be at the price that it is, at $60 oil, which has got to come good at some stage. We're bound to see things like Sound Energy (SOU) coming through. And I also can't believe that stocks like Premier (PMO) and of course with Rockhopper (RKH) as well, they haven't picked up more than they already have. So you know, I'm still in with the quality, and I still think that there are a number of stocks there which are yet to pick up, which they'll do, we'll talk about that when we readjust the Bucket List next Spring.
Any stocks not on the Bucket List we should keep an eye on?
Well, they're always stocks which aren't on the Bucket List, which I'm keeping an eye on, and there's probably one or two that I haven't even spotted as well. I think that one or two places will prompt investigation in the next year.
And one of the areas which I'm expecting to see exciting news from is South America. Latin America, in particular, places like Columbia and Argentina and Bolivia and so on, are being looked at very carefully and so I'm looking at as a mention for Amerisur and Columbia, I'm looking at President Energy (PRES), which has got the fantastic portfolio recently added to by the Chevron assets in Argentina.
And, of course, Echo (ECHO), which is suspended at the moment, but I would expect it to come back very positively, and they've just bought a big lump of … a very exciting, almost full cycle oil asset, gas assets, mainly gas assets, in Argentina. So, I think they're going to do well.
And there are one or two other stocks which I think are looking interesting as well. I would like to keep a very close eye on a thing called Reabold Resources (RBD), which has been set up by two former fund managers from M&G. They've done two deals so far, I would have expected them to do one or two more, and very creative and very value-added businesses I would expect to see from there.
So you know, there'll be plenty of stocks to look at, some of which are on the radar screen already, and some of them aren't. I like something like Trinity (TRIN), which is West Indies, in Trinidad. I would expect Trinity and maybe one or two others in that area to do well. So, you know, I can imagine increasing the Bucket List quite substantially at the end of January.
And there's one other stock which was meant to go into the Bucket List way back in June called Savannah Petroleum (SAVP). Now, I missed Savannah getting into the Bucket List by one day. I was ready to put it in, then they announced the deal which we now know to be buying the seven energy assets in Nigeria. I'm expecting that to come back from suspension the week before Christmas [it did], and it'll be probably at a higher level than it was when they got suspended.
And having raised, you know, $250 million for that acquisition, which could be a real major game changer for Savannah. So, you know, there are a whole bunch of stocks, some of them bigger like Savannah, and some of them smaller.
One or two are suspended at the moment, so you can't buy them or sell them at the moment, but all those ones that I just mentioned are very much on the watch list.
This is the transcript of a video filmed in December. To watch the original video, please click here.
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
|VICTORIA OIL & GAS||34.25p||-5.91%|
|TRINITY EXPLORATION & PRODU...||16.60p||0.45%|
|ROYAL DUTCH SHELL||2,288.50p||0.42%|
|JERSEY OIL AND GAS||185.50p||-1.59%|
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