$50 oil drives Falcon Oil & Gas Limited, Petrofac Limited and Weir Group plc in different directions

Falcon Oil & Gas Limited (LON: FOG), Petrofac Limited (LON: PFC) and Weir Group plc (LON: WEIR) have had mixed fortunes in recent months, says Harvey Jones

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Oil has hit a seven-month high, with Brent crude closing above $50 a barrel for the first time since 3 November. The latest hop was driven by a decline in US crude supply, which offset OPEC’s latest failure to set a production ceiling. The recovery has been a blast for oil investors, with most stocks in the sector flying. Most, but not all.

Falcon soars

On 27 January, in the middle of the oil stock rout, I said that Falcon Oil And Gas (LSE: FOG) looked tempting for those who are bullish on the oil price recovery, concluding that: “There’s a strong bull case to be made, but only for speculative investors.” I hope you speculated. At the time, it traded at 5.5p. Today you pay 8.5p, a rise of 55%.

I admired Falcon for its high-quality assets, fully-funded Australian drilling programme, and debt-free balance sheet, which also boasted $9.8m in cash. Rather than drilling through its cash pile, like many other explorers, Falcon has been adding to it and it totalled $12.7m at year-end. Costs are under control, helped by a successful campaign of slashing administrative expenses, which fell 38% last year from $4m dollars to $2.5m. All this and $50 oil too! If you believe oil is due another leg up, Falcon could be a safer way to play it.

Petro flops

Oil services specialist Petrofac (LSE: PFC) is a rare damp squib in a sector that has been on fire lately, so what went wrong? Scandals never help, and Petrofac has been embroiled in a global bribery scandal, following claims a former executive paid $2m to clinch a major oil deal in Kuwait. It was also hit by results in March showing a sharp drop in annual profits due to delays and cost overruns at its Laggan-Tormore plant.

Last year, it booked a huge $430m charge on the project and last month announced a further charge of £70m, but at least this is a final settlement and should draw a line under the saga (at a total cost of $800m). With a strong order book, valuation of around nine times earnings and yield of 5.74%, Petrofac looks poised to start playing catch-up.

Here Weir goes

Glasgow-based pump maker Weir Group (LSE: WEIR) hit a low 807p in January, but today trades at 1,185p, a rise of 47% for those who bought at the very bottom. This offers much-needed relief as the company had been through a torrid time due to falling demand from US shale clients, which also knocked its supposedly resilient after-sales market. US rig count is now down from a peak of more 2,000 to around 300, so the future still looks challenging.

Everybody is waiting to see what will happen to shale if the oil price climbs higher. Will flexible drillers swing back into action? If so, Weir could fly even higher. HSBC recently upgraded the stock to buy saying it’s particularly sensitive to the oil price, and will do particularly well if the oil price continues to climb. Trading at 13.7 times earnings Weir is no longer that cheap, but the yield compensates at 4.97%.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Petrofac. The Motley Fool UK has recommended Weir. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Up 105% in a year! Is this rocketing FTSE bank the perfect pick for my Stocks and Shares ISA?

Harvey Jones is drawing up a shortlist of stocks to purchase inside his Stocks and Shares ISA allowance. This FTSE…

Read more »

Investing Articles

Is it madness to buy Palantir shares after Q3 earnings?

Palantir stock's surging again after the firm's Q3 earnings report. But after a 150% gain, is it too late to…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

£6,000 in savings? Here’s how I’d aim to turn that into £1,032 a month of passive income!

A small investment in high-dividend-paying stocks with the returns used to buy more shares can generate big passive income over…

Read more »

Chalkboard representation of risk versus reward on a pair of scales
Investing Articles

As Lloyds’ share price tumbles 14%, is this an unmissable opportunity for me to buy at a bargain-basement price?

The Lloyds share price is substantially below its year high, but decent earnings prospects should drive its price and dividend…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

2 UK shares that could rise if Trump wins the Presidential election

These UK shares are among the FTSE 100's most popular stocks. And they could rise in value if Donald Trump…

Read more »

Closeup ruffled American flag representing US stocks and shares
Investing Articles

2 UK stocks that could rise if Harris wins the Presidential election

Royston Wild believes these UK stocks could receive a bump if Kalama Harris wins the Presidency, giving their share prices…

Read more »

Investing Articles

After a 96% plunge, is buying more Aston Martin shares throwing good money after bad?

Just two weeks after buying Aston Martin shares Harvey Jones found himself nursing a painful loss. Yet after recent news…

Read more »

Investing Articles

After crashing 45% in October, should I buy this FTSE 250 share for my Stocks and Shares ISA?

Roland Head explains why he’s tempted to add this risky FTSE 250 turnaround share to his Stocks and Shares ISA…

Read more »