Shares in Nostrum (LSE: NOG) have fallen by up to 5% today after the company released an operational update for the first nine months of the year. During this time, it has missed its previous production targets as it sought to produce an average of 45,000 barrels of oil equivalent per day (boepd), with the figure for the nine months to September 30 coming in at just over 44,000 boepd.
As a result of this, as well as unexpected repair work, Nostrum has reduced its annual production target to between 40,000 and 42,000 boepd, although 2016 production guidance remains at 45,000 boepd.
Clearly, the fall in production is rather disappointing and, when combined with lower oil and gas prices, means that Nostrum’s revenue has fallen in the first nine months of the year from $620m last year to over $370m in the same period this year.
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Looking ahead, Nostrum has ambitious production growth targets, with it aiming to produce 100,000 boepd in 2018. And, with the company being focused on delivering cost savings, it looks set to rapidly improve its profitability over the medium term. Certainly, today’s update is disappointing, but with the repair work being exceptional and the company’s shares trading on a price to earnings growth (PEG) ratio of just 0.4, they could prove to be a sound long term buy.
Similarly, gold miner Centamin (LSE: CEY) offers considerable upside. Its production targets are also highly ambitious and it is on target to reach production of 500,000 ounces of gold per annum by 2017. This has the potential to boost the company’s bottom line and, looking ahead to next year, it is forecast to deliver a rise in earnings of 14%. This puts Centamin on a PEG ratio of only 0.9, which indicates that it offers growth at a reasonable price.
Furthermore, with the outlook for the global economy being relatively uncertain, gold stocks such as Centamin could grow in their appeal. That’s because gold has historically been seen as a store of wealth by investors, which could help the price of the precious metal to rise over the medium term.
Meanwhile, BHP Billiton (LSE: BLT) continues to offer highly disappointing near-term prospects, with its bottom line forecast to sink by a further 50% in the current year. This is likely to ramp-up the pressure on its share price in the short term following its 32% decline of the last year.
However, with BHP having an exceptionally strong balance sheet and excellent cash flow, it stands to benefit from the current decline in commodity prices. That’s because it has the financial firepower to make acquisitions and develop new revenue streams, with it being rumoured to be considering several potential purchases in the oil project space. And, with a relatively low cost base, BHP Billiton could outlast most of its peers during the current downturn and emerge in a stronger relative position. As such, for long term investors, it could prove to be a sound buy.
