However, the share performance of exploration company 88 Energy (LSE: 88E) has not been particularly impressive. Its valuation is flat on where it was 12 months’ ago, with investors seemingly unsure about the prospects for the business following disappointing flow-test results.

With the company reporting an update on Friday, could it be worth buying alongside another oil and gas company which seems to have an impressive long-term outlook?

Operations update

88 Energy announced that it has increased its footprint on Alaska’s North Slope through an agreement with Arctic Slope Regional Corporation. This will see the company lease the hydrocarbon rights across 28,453 acres contiguous with the Western Fairway area of the current Project Icewine acreage.

Alongside this, the company has also entered into an agreement with Great Bear Petroleum to acquire a 69.1% working interest in 24,269 acres adjacent to, and north of, the Central Play Fairway at Project Icewine. Together, the two acquisitions increase the company’s lease position by 45,239 net acres to 371,478 net acres across its three main project areas on the Central North Slope of Alaska.

Clearly, the company has experienced a challenging recent period. Although Project Icewine seems to have significant long-term development potential, it’s proving to be somewhat difficult to turn its prospective resources into commercial reserves. Therefore, it may only be of real interest to less-risk-averse investors at the present time.

Improving financial outlook

As mentioned, the rising oil price looks set to boost the financial prospects for a number of companies across the oil and gas sector. One example is Cairn Energy (LSE: CNE), which is expected to report a rise in earnings of almost 200% in the next financial year. This puts it on a price-to-earnings growth (PEG) ratio of just 0.1, which suggests there could be upside potential ahead, even after its share price rise of 18% in the last year.

The company may be facing regulatory risk due to an ongoing dispute with the Indian authorities. But with its production expected to rise, and it having further development potential in other assets, its medium-term outlook appears to be relatively positive.

With the potential for the oil price to move higher over the coming years, Cairn Energy could be an appealing stock to buy at the present time. While volatility may be high, its valuation suggests that a wide margin of safety is on offer. And with what appears to be a strong asset base and solid balance sheet, its financial prospects could provide a significant catalyst for its stock price over the coming years.

The post Thinking of investing in the 88E share price? You really need to read this appeared first on The Twelfth Magpie.

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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Management claims that the firm’s Project Icewine acreage in Alaska contains prospective resources of between 0.8bn and 2bn barrels in the HRZ shale play, with a further 1.75bn barrels from conventional reservoirs.

The problem is that exploration drilling hasn’t yet converted any of these prospective resources into commercial reserves. This year’s delayed flow test of the Icewine #2 well only recovered 1,372 barrels of fracking stimulation fluid and some gas. No oil came to the surface.

The company says that these results are not “representative of the capability of the reservoir”. I think the jury’s still out.

Partner required

88 Energy now wants to drill some more wells to test the potential of the Icewine acreage. Having ended last year with a net debt of $7.2m, it’s now looking for a farm-out partner to share the cost.

A presentation published by the company on Tuesday makes it clear that plans for further drilling on Project Icewine won’t go ahead without a new partner.

It’s too soon to write off Icewine as a failure. But in my view results so far have been disappointing. This stock looks like a high-risk punt to me, so I’m looking elsewhere in the oil market.

One oiler on my radar

The Cairn Energy (LSE: CNE) share price fell by about 4% this morning after the company said it had written off $231m of the value of its Indian investments. This was necessary because shareholdings and dividend payments owed to Cairn have been confiscated by the Indian tax authorities.

This sounds like a situation to avoid. But things could soon change. The firm’s long-running tribunal claim hearing was completed in August and a ruling is promised “as expeditiously as possible”. Cairn may yet recover some, or all, of its Indian assets.

Rising production

In any case, Cairn’s financial security doesn’t depend on these assets. The firm’s stake in the Kraken and Catcher North Sea oil fields means that revenue is rising fast as these oil fields ramp up.

The group’s working interest production averaged 14,400 barrels of oil equivalent per day (boepd) during the first half of 2018. By the end of June, this figure had reached 19,700 boepd. Revenue for the half rose to $182m, up from just $10.8m during the same period last year.

Long-term opportunity

Analysts expect the firm’s full-year results to show an adjusted after-tax profit of about $75m. This figure is expected to double in 2019, thanks to rising North Sea revenues.

Alongside its North Sea production assets, Cairn also has a 40% stake in one of the largest oil discoveries of recent years. The SNE field offshore Senegal is expected to start producing in 2022. Initial output of 100,000 boepd is being targeted, with more expected after further exploration.

Cairn’s shares trade broadly in line with the group’s net asset value of around £1.5bn. The group has net cash of $75m, and earnings forecasts for 2019 put the stock on a P/E of 10. Given the long-term potential of the Senegal field, I think this could be a good entry point for long-term investors.

The post Are you tempted by the 88 Energy share price? Here’s what I’d buy instead appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

With that in mind, here are two shares that could improve your portfolio returns. Over time, they have the potential to deliver high returns, which could help you to reach seven-figure status.

Low valuation

Reporting on Monday was oil and gas company Cairn Energy (LSE: CNE). It released an update regarding its ongoing arbitration with the Indian government, with all of the written submissions by both sides having been made. The final arbitration hearings will take place for two weeks commencing on 20 August. In the meantime, the Indian Income Tax Department has continued to enforce its retrospective tax claim. Dividends have been seized, while part of the company’s shareholding has also been realised, according to the update.

Clearly, the near term could be relatively volatile for Cairn Energy. However, the stock market appears to have factored in its uncertain outlook. It’s forecast to grow its bottom line by 56% next year, with shares trading on a price-to-earnings growth (PEG) ratio of just 0.3. As a result, it could offer a wide margin of safety.

That’s especially the case since the oil price may move higher during the second half of the year. Supply disruption from Iran, due to US sanctions, could cause an imbalance between demand and supply. As a result, the prospects for the wider oil and gas industry could be positive.

Improving performance

Also having the potential to benefit from a rising oil price is diversified resources company BHP Billiton (LSE: BLT). It provides investors with exposure to a wide range of commodities, and this could help to boost its risk/reward appeal for the long term.

Clearly, the company has benefitted from an improving outlook for commodity prices in recent years. This trend could continue over the medium term, with Chinese and US GDP growth forecast to remain robust over the next couple of years. And with the stock having a price-to-earnings (P/E) ratio of around 15.5, it seems to offer good value for money given its diversity and financial strength.

Furthermore, BHP Billiton has a dividend yield of around 4.5% at the present time. This is expected to be covered around 1.6 times by profit in the current year. This suggests that it’s sustainable, and could experience strong growth should trading conditions remain favourable. As such, and while resources shares are likely to remain volatile, the prospects for the company from a total return perspective appear to be encouraging.

The post Want to become a stock market millionaire? Here are 2 shares that could help appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of BHP Billiton. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Operational excellence

Today’s trading update confirmed that the company’s operations are performing well. Production is ramping up at the flagship Catcher field in the North Sea, and Premier’s management say that the firm is on track to meet full-year guidance of 80,000-85,000 barrels of oil equivalent per day (boepd).

Looking ahead, the group is planning to appoint “a pathfinder bank” to start arranging financing for the Sea Lion project in the Falkland Islands. And Premier will try to firm up the size of its Zama discovery off the coast of Mexico by kicking off a three-well drilling programme during the fourth quarter.

Falling debt offers opportunity

Premier’s operational performance has been consistently good in recent years. The potential problems are in the finance department. The company went into the oil crash with far too much debt and only survived thanks to a complex refinancing.

Oil’s recent surge to $77 per barrel has been a blessing for the firm. It’s taken advantage of stronger prices to lock increase its hedging for the year ahead. If oil remains stable for the rest of the year, boss Tony Durrant expects to report a “significant” fall in the group’s $2.7bn net debt during the second half of the year.

The shares currently trade on a 2019 forecast P/E of just 5.8. If borrowings fall as planned over the next 18 months, I think the shares should be worth 150p-200p by 2020. I continue to hold.

This debt-free firm could rocket

Shareholders at Cairn Energy (LSE: CNE) have needed patience in recent years. In 2012, the company had net cash of $1.5bn and no production. By the end of 2017, net cash was down to $86m, but production is set to reach 17,000-20,000 bopd this year.

The Catcher and Kraken fields in the North Sea are now producing oil. And the company is also working towards the development of its world-class SNE field, offshore in Senegal. The initial production target is for 100,000 barrels of oil per day from the lower reservoir, which is thought to contain around 240m barrels. The upper reservoir is of a similar size and will be targeted in later phases of production.

A possible $2.4bn windfall

The only fly in the ointment is that Cairn’s 5% shareholding in Vedanta Limited is currently frozen due to a tax dispute with the Indian government. This stake was valued at $1.1bn at the end of 2017.

There’s no way to know how this dispute will end. But in addition to the tax dispute, Cairn is also claiming for damages and other seized assets to a total of $1.3bn. If successful, these claims could result in the company receiving a cash windfall of around $2.4bn.

I don’t expect the full amount to be awarded. But given the group’s £1.5bn ($2.1bn) market-cap, even a partial award of damages could give a huge boost to the group’s share price.

In the meantime, Cairn is expected to report earnings of $0.13 per share this year, rising by 70% to $0.22 per share in 2019. These figures put the stock on a forecast P/E of 26, falling to a 2019 P/E of 15.5. With a lot of growth still to come, I’d rate the shares as a buy at this level.

The post Why I believe the Premier Oil share price is still far too cheap appeared first on The Twelfth Magpie.

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Roland Head owns shares of Premier Oil. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Recovery in profits

Driven by growth in production and cost savings, profits have staged a dramatic recovery. Underlying replacement cost profit, the company’s preferred measure, came in at $2.6bn in the first quarter of 2018. It’s the highest level for almost three years, and represents a rise of 71% on the same period last year.

Meanwhile, upstream profits have recovered even faster — they are at their highest since Q3 2014, back when oil traded at roughly $100 a barrel. And looking ahead, further gains could still be to come as BP has yet to fully realise the benefit of the recovery in crude oil prices.

Analysts from Goldman Sachs reckon it will benefit from new oil and gas projects coming into production over the next few years, which would add significantly to profits and cash flows. It also believes its portfolio of new projects is more profitable today with Brent at $60 a barrel than it was when oil traded at around $100 a barrel. The investment bank has given BP shares a price target of 640p.

Downside risks

Certainly, much has changed for the company, but there are also a few downside risks to bear in mind. Total costs relating to the Deepwater Horizon oil spill in 2010 are set to soar to more than $65bn, while spill-related payments continue to eat into cash flows. And net debt remains higher than many analysts want to see, delaying any further increase to shareholder payouts.

The biggest concern is whether oil prices could slip again. Production growth is surging on higher crude prices, and there are additional fears on the demand side. Rising US crude stockpiles have been fuelling concerns of a slowdown in demand growth and the risk of a global trade war is an additional source of uncertainty.

Smaller upstream plays

Instead, it may be worth looking at some smaller upstream energy stocks, such as Cairn Energy (LSE: CNE), which may have even more upside potential if the oil rally is sustained. Upstream pureplays should have more to gain from higher oil prices, yet many such companies continue to trade at a discount to the oil majors.

Cairn Energy is particularly worth a closer look because the company could be set be benefit from a few bullish catalysts. The issue that is most keenly watched by investors is probably its Indian tax dispute. The final hearing of the case is set to take place in August and a successful outcome could see the company return a very significant windfall to shareholders.

Developments in the UK North Sea are also going well, with a ramp up in production expected to add significantly to cash flows going forward. Of course, there’s also a great deal of operational and exploration risk involved with the company, but unlike many of its peers in mid-cap E&P space, Cairn has a very solid balance sheet and is almost debt-free.

The post Can the BP share price reach 600p in 2018? appeared first on The Twelfth Magpie.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has recommended BP. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

With this in mind, there could be buying opportunities available for long-term investors. Reporting on Wednesday was a company which offers strong growth, while an industry peer could also be an impressive performer in future years.

Solid performance

Wednesday saw gold and silver miner Fresnillo (LSE: FRES) sharing its first quarter production update. It was generally positive and showed that the company is on target to meet its guidance for the full year.

During the quarter, silver production increased by 14% versus the same period of the previous year. This was mainly due to the contribution from San Julian JM (phase II). Quarterly gold production increased by 4.1% year-on-year, with it benefitting from a higher contribution from Herradura.

Rising production means that Fresnillo is expected to deliver an increase in its bottom line of 14% in the current year, followed by further growth of 10% next year. This puts it on a price-to-earnings growth (PEG) ratio of 1.9, which suggests that it may offer good value for money at the present time.

Certainly, the prospects for the gold and silver prices remain uncertain. Higher inflation expectations could provide a boost to their prices, although rising interest rates may offset this to some extent. Given that Fresnillo seems to offer growth at a reasonable price and volatility remains high in stock markets, it could prove to be a sound buy.

Improving prospects

With the oil price having risen significantly in recent months, the outlook for the oil and gas industry has improved. Cairn Energy (LSE: CNE) is a stock which could benefit from improving sentiment across the industry, with its exploration and development programme now due to deliver rising production over the next couple of years.

In fact, the company is expected to be profitable in the current financial year and then generate earnings growth of 73% in the 2019 financial year. This has the potential to boost investor sentiment in the company. And with it trading on a PEG ratio of 0.3, it appears as though there is a wide margin of safety on offer. This could mean that even if the oil price experiences a decline, the company’s share price may not be severely affected.

Of course, Cairn Energy remains a relatively high risk stock in terms of its exposure to commodity prices. But with what seems to be a solid balance sheet and an asset base which could generate high returns, it could be worth buying for the long term. Its valuation suggests that the market has not priced in its full potential.

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Peter Stephens owns shares of Fresnillo. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

By sheltering the shares inside a tax-free wrapper from the start, you should be able to avoid future capital gains and income tax liabilities.

Getting Sirius about potash

Sirius Minerals (LSE: SXX) has attracted a loyal shareholder following who view the stock as a long-term play that could help fund their retirement.

Although I share the view that this could become a great business, I’m not convinced the current share price reflects the 10-year plus timescale I believe will be required for the company to reach its full potential.

Crunching the numbers

Sirius has calculated a base case net present value (NPV) of $15.4bn for the Woodsmith mine. This represents the current value of lifetime profits from the mine, based on annual production of 20 million tonnes per annum (mtpa) of POLY4 fertiliser, forecast fertiliser prices and a number of other standard assumptions.

I estimate that at the current share price, the group’s market-cap and net debt could total about $4.8bn by the end of 2018. This includes $3bn of stage 2 debt financing planned for this year, without which the project can’t proceed.

$4.8bn is less than one third of the $15bn NPV, so you could argue the shares look cheap. But this valuation is based on annual production of 20mtpa. Sirius doesn’t expect production to reach 10mtpa until 2024. Doubling this could take several more years.

In my view, Sirius could be a great long-term play. But I think the shares’ discount is justified. I don’t see any rush to buy.

One stock I would buy

It’s a slightly different story at oil and gas firm Cairn Energy (LSE: CNE). The firm reported a return to profit this morning thanks to the recent start of production from its Catcher and Kraken fields in the North Sea.

The group expects related production to reach 17-20,000 barrels of oil per day (bopd), supporting forecast revenue of $434m in 2018.

Cairn’s blockbuster SNE field — off the coast of Senegal — is now “fully appraised”. An evaluation report is being prepared and an investment decision is expected by the end of the year. The firm, which has a 40% interest in SNE, expects to target initial production of 100,000 bopd.

A hidden opportunity

My calculations suggest that after today’s results, Cairn shares trade at a 28% discount to their book value, excluding goodwill.

In my view, this represents a potential buying opportunity. Although profits are expected to be just $55m this year — giving a forecast P/E of 33 — the group has a number of oil fields due to start production over the next five years.

There’s also a more immediate opportunity. Cairn is in arbitration to regain control of $1.2bn of financial assets currently stranded in India as the result of a tax dispute. The final hearing in this case is due in August, following which a ruling has been promised “as expeditiously as possible”.

If Cairn can get access to even half of its India assets, I believe the shares could start to look very affordable at current levels. The shares aren’t without risk, but I believe this could be a great stock to tuck away in an ISA and forget.

The post Sirius Minerals plc isn’t the only growth stock I’d consider buying for my ISA appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

While the rise in the oil price has caused investor sentiment to pick up, the valuations on offer across the sector do not yet appear to factor-in the prospects of a rising oil price. As such, now could be a good time to buy the following two oil and gas companies ahead of what may prove to be a more profitable period than expected.

Rising share price

Gaining 11% on Monday was oil producer Enquest (LSE: ENQ). Investors responded positively to its operations update, with the company averaging 37,405 barrels of oil equivalent per day (boepd) in 2017. This was in line with previous guidance, with Kraken first oil delivered in the second quarter of the year. There was also a successful completion of the acquisitions of interests in Magnus and the Sullom Voe Oil Terminal during 2017.

Looking ahead to 2018, Enquest expects average production to grow by between 33% and 55% versus the prior year. This seems to have boosted investor sentiment, and this trend could continue in the near term.

Encouragingly, the company’s cash capital expenditure is expected to be materially lower in 2018 than in 2017. It is due to be around $250m and when combined with higher production, this could lead to stronger cash flow for the business. With the company expected to post a rise in earnings of 73% in the next financial year, it has a price-to-earnings (P/E) ratio of just 2.6 using 2019’s forecasts. This suggests that it could offer high potential rewards for the long run.

Impressive outlook

Also offering upbeat capital growth potential in the oil and gas sector is Cairn Energy (LSE: CNE). It has ambitious production plans over the next few years which could transform the financial performance of the business.

For example, it is expected to deliver profitability in the current year after a number of years of development and investment in its asset base. This in itself could help to improve investor sentiment, while a forecast rise in earnings of 49% next year could lead to stronger share price performance.

Despite its upbeat financial outlook, Cairn Energy trades on a price-to-earnings growth (PEG) ratio of just 0.4. This suggests there is a wide margin of safety on offer at the present time, and could mean that it has a favourable risk/reward ratio.

Certainly, there is scope for volatility and even a fall in the oil price. However, with the prospects of continued demand growth and further restrictions on global supply, the prospects for the oil price seem to be more positive now than they have been in a number of years.

The post 2 growth stocks I’d buy and hold for the long run appeared first on The Twelfth Magpie.

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• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Fossil fuel giant Cairn Energy (LSE: CNE) is one such share I am avoiding today. Rather, I  would consider cashing out of the business today despite a stable operational update released on Tuesday.

Bubbly update

In today’s bright market statement, chief executive Simon Thomson declared today that “over the last 12 months, Cairn has achieved several strategic milestones and is well positioned to deliver on its strategy in 2018.”

For the full year, Cairn said that it expects production to come in at between 17,000 and 20,000 barrels of oil per day, with plateau production from Catcher and Kraken expected at the mid-point of 2017. The FTSE 250 business celebrated pulling maiden oil from these North Sea assets last year.

Looking elsewhere, the third phase of drilling at its JV in Senegal was completed in 2017, and Cairn said that it is now seeking development approval by the close of 2018. First oil from the SNE field is expected between 2021 and 2023, the business said.

And in other news, Thomson said that “we will begin a sustained drilling campaign in the UK and Norway where Cairn has built an extensive portfolio.”

Still too risky

With Catcher and Kraken steadily ramping up production, City brokers expect Cairn to finally flip into the black in 2017. Earnings of 8.7 US cents per share are forecast, and this is expected to improve to 12.2 cents next year.

But I am still not tempted to jump in right now. Instead, with the driller currently changing hands on an elevated forward P/E ratio of 34.4 times, I would consider shifting out before the newsflow worsens.

Crude prices are in danger of reversing again in my opinion, reflecting a hulking supply/demand imbalance that looks set to endure. This situation is casting a shadow on these earnings forecasts, not to mention Cairn’s already-stretched balance sheet (net cash dropped to just $56m as of December from $254m six months earlier).

And of course, the unpredictable nature of fossil fuel exploration and development means that any poor operational updates this year could drive Cairn’s share price sharply lower. There is just too much risk still facing Cairn today, in my opinion.

Defence darling

Those seeking a turnaround titan on safer footing may want to check out Avon Rubber (LSE: AVON) instead.

The business, which builds masks for the military, is expected to see its long record of double-digit earnings growth fall in the year to September 2018 as lumpy contract timings bite — a 16% profits fall is anticipated by City brokers. However, Avon is expected to get firing again with a 4% rise in fiscal 2019.

While the small cap carries a forward P/E ratio of 18.7 times, above the widely-regarded forward P/E ratio of 15 times, this is not a problem for me, despite predictions of a hefty near-term profits fall.

News of booming orders has sent the defence giant’s share price spiralling higher in recent months, and with defence budgets on the mend and conditions in the dairy market also getting better (Avon also makes hardware for milk extraction), the Melksham firm’s earnings outlook is likely to keep on improving.

The post 1 turnaround stock I’d buy and 1 I’d sell in 2018 appeared first on The Twelfth Magpie.

More reading

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• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Therefore, could now be the right time to buy it? Or could there be a more opportune moment to buy the small-cap resources play?

Risk/reward

Clearly, as with any exploration stock there are significant risks. The company’s future share price performance is closely linked to the quality of its news releases. However, it appears to have an asset base which could deliver positive news flow. Its Eastern Moroccan operations could provide a catalyst for its share price, with it having sought to de-risk its exploration potential. As well as this, it has a cash balance of $50.1m (as at 30 June), which indicates that its exploration activities may be well-funded over the medium term.

Industry outlook

As well as the quality of its news releases, Sound Energy and sector peers such as Cairn Energy (LSE: CNE) are also highly dependent upon the outlook for the wider oil and gas industry. In 2017, there has been a marked improvement in the prospects for the oil price. It has risen to a two-year high and many investors are now becoming more bullish about its future growth potential – especially since OPEC and non-OPEC members have stated that they are keen to support the oil price at its current level.

Of course, there is scope for the oil price to fall. Disagreement among OPEC members could mean the supply cuts that have helped to push its price higher are discontinued over the medium term. As such, it remains a risky place to invest compared to other industries and sectors.

Growth potential

However, the inherent risks of the industry could mean the potential rewards are also greater. As mentioned, Sound Energy now trades 25% lower than it did a year ago, and this could mean there is greater upside potential on offer. Similarly, Cairn Energy has ambitious production plans over the next few years which could see its financial performance transformed. Although it trades on a price-to-earnings (P/E) ratio of 30 using forecast earnings for 2018, in future years it has the capacity to deliver rapid growth in earnings as production increases.

Therefore, both stocks seem to offer upbeat investment outlooks for the long term. Neither may be suitable for more risk-averse investors, since they are likely to remain volatile in 2018 and beyond. However, for investors seeking exposure to exploration companies in the oil and gas sector, Sound Energy and Cairn Energy could offer relatively strong share price growth potential for the long term.

The post Should we now pile into Sound Energy plc after crashing 25%? appeared first on The Twelfth Magpie.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.