A rising oil stock I’d buy alongside IGAS Energy plc for 2018

With oil prices rising, 2018 could be a great year for oil & gas explorers like IGAS Energy plc (LON: IGAS).

| 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.

When oil prices hit rock bottom, I reckoned it was time to take a risk and I bought some Premier Oil shares — and watched them plummet further. Still, thanks to the oil price recovery, I’m now at breakeven. 

I’m seriously starting to think that 2018 could be a very good year for oil & gas investors, and I reckon Soco International (LSE: SIA) could be one to go for.

Soco, focused on Vietnam, has seen its share price crash by 67% over the past five years as the end of a previously lucrative exploration cycle faded. But over the long term the company has produced powerful returns for investors, and we could be heading for a new profit spell coupled with the prospect of a few years of tasty dividends.

New look

In the firm’s latest update on Wednesday, chief executive Ed Story said: “The new Soco vision is to build a growth-oriented E&P company of scale, generating through-cycle total shareholder returns whilst adhering to the company’s historic focus on financial discipline and an annual dividend.” The latest signs look good to me.

Production averaged “8,276 boepd net to Soco’s working interest during 2017,” and development of the company’s Te Giac Trang interest is on time and within budget.

For the full year, the firm’s balance sheet has been strengthened and boasts cash and liquid investments of $137.7m. And, of enormous importance, there’s no debt. Soco reported an enviable cash operating cost of only $14 per barrel, while the company realised an average crude oil price of $56 per barrel.

And with prices starting to climb, reaching $63 as I write, I think 2018 could be a very good year for Soco.

No profit yet

Another oily that’s been making waves in recent months is IGAS Energy (LSE: IGAS), which is moving ever closer to profit. IGAS, with onshore hydrocarbons in the UK being its focus, significantly improved its balance sheet in 2017 after Kerogen Capital invested $35m (£29m) in the firm, an open offer raised a further $22m (£18m), and net debt was reduced from $122m (£100m) at 31 December 2016 to just $9m (£7m) by 30 June.

With £16m in cash on the books at the end of June, chief executive Stephen Bowler told us” “We are well funded for the future and continue to be cashflow generative at current oil prices.” And it looks increasingly like we’re heading into the sustainable oil price recovery that the industry has been awaiting for a few years now.

Fall arrested

The IGAS share price had been in freefall, but it’s bounced back in the past few months, having put on 85% since late September to today’s 92p. The institutional investors out there appear to be happy with the company’s capital restructuring, and sentiment is clearly far more positive now than in the middle of last year.

I’ve been basing my own investment thoughts on a sustainable long-term price of around $70 per barrel, and we’re heading in that direction. After a flat spell of around $56 towards the end of 2017, the past month has seen a surge to $63, and I’ll be surprised if we’re not looking at significantly higher levels by the summer.

If IGAS was cash-flow positive at oil prices back when first-half results were released in September, I’m cautiously optimistic that 2018 and beyond should reward investors well.

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.

Alan Oscroft 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.

More on Investing Articles

Investing Articles

Up 26%, can the BT share price really push higher still?

The BT share price has surged on several catalysts in 2024, but there’s evidence to suggest that the stock could…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

What are the best dividend shares to buy right now?

As shares in B&M European Value Retail have fallen, the dividend yield has reached a 10-year high. Should investors be…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

My favourite FTSE 100 passive income stock that keeps the Christmas coffers full

The holiday season is expensive and can leave many consumers struggling to make ends meet. Here’s how I use a…

Read more »

Investing Articles

The latest growth forecasts suggest the Glencore share price will hit 555p!

Harvey Jones has been disappointed by the performance of the Glencore share price since he bought the commodity stock last…

Read more »

Dividend Shares

A closer look at the 11% dividend yield forecast for Phoenix Group shares

Phoenix Group shares have one of the highest dividend yields in the FTSE 100 index today. Could this be a…

Read more »

Investing Articles

If I’d put £25,000 into the FTSE 350 at the start of 2024, here’s how much I’d have today!

Many FTSE shares have rebounded this year as interest rates look set to keep heading lower and market appetite for…

Read more »

Investing Articles

Up 40%, but experts forecast the easyJet share price could soon hit 664p! Time to buy?

The easyJet share price has been flying lately and stock analysts are predicting more fun to come. But there's only…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

Worried about tax raids? Here’s how I’m targeting a £44,526 passive income with shares

Investing in a Self-Invested Personal Pension (SIPP) or Individual Savings Account (ISA) can supercharge one's passive income, says Royston Wild.

Read more »