Shares in oil and gas company Roxi Petroleum (LSE: RXP) are trading as much as 4% higher today after an encouraging update regarding its flagship BNG asset. In fact, Roxi has reported a new discovery at the MJ-F structure towards the North of South Yelemes field at BNG and now believes there are three main intervals of interest at Well 143 at depths of 2193, 2216 and 2692 metres. Furthermore, a fourth interval of interest at a depth of 2088 metres has also been identified from core samples.
And, even though Roxi experienced multiple failed well tests, its high hopes for Well 143 seem to have been well-founded. That’s because oil has flowed from intervals at 2692 metres and 1935 metres and, should further testing of these two intervals to determine reliable flow rates be successful, the location of the well has the potential to extend the shallow horizon at South Yelenes from which three other wells are currently producing.
Clearly, there is still some way to go before Roxi Petroleum begins to realise its potential as an oil producer. While its news flow is positive, investors may prefer to focus on resources companies that are already relatively stable producers and which are delivering strong growth in profitability. After all, investor sentiment in the resources space is somewhat weak at the present time and, with the potential for further commodity price falls, seeking out more established companies could be a prudent move.
As such, the likes of Petra Diamonds (LSE: PDL) and Polymetal (LSE: POLY) appear to be worth buying at the present time. In the case of the former, it has remained profitable throughout the last four years and, during that time, has posted annualised growth in its bottom line of over 20%. And, while its earnings are expected to fall by 34% in the current year, this appears to be adequately compensated for in the company’s current valuation. In fact, Petra Diamonds trades on a price to earnings growth (PEG) ratio of only 0.3 since its net profit is forecast to soar by around 46% in 2016.
Meanwhile, Polymetal has endured a more turbulent recent period, with losses being posted in two of the last four years. And, with the price of gold recently hitting a five year low, it may be surprising that the company is forecast to move sharply back into profitability in the current year. This could boost investor sentiment in the company and turn the tables on a fall in its share price of 10% in the last year. Furthermore, with Polymetal trading on a price to earnings (P/E) ratio of just 10.4, there is considerable scope for an upward rerating over the medium to long term.
So, while all three stocks appear to be worth buying as part of a diversified portfolio, the consistency of profit in recent years, excellent growth potential for next year and appealing valuation of Petra Diamonds make it the preferred option at the present time.
