Is Falkland Oil And Gas Limited The Perfect Partner For Genel Energy PLC, Soco International plc And Nostrum Oil & Gas PLC In Your Portfolio?

Should you buy a slice of Falkland Oil And Gas Limited (LON: FOGL) alongside Genel Energy PLC (LON: GENL), Soco International plc (LON: SIA) and Nostrum Oil & Gas PLC (LON: NOG)?

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Shares in Falkland Oil and Gas (LSE: FOGL) received a boost today with news that the Eirik Raude drilling unit has arrived at the North Falkland Basin site. This is good news for the company and now means that it can shortly commence drilling in the region, which could have a major impact upon its share price.

Important Period

In fact, this is set to be a crucial period for the company. That’s because its drilling programme will provide investors in the company with a much clearer idea on the potential reserves available to it. As a result, Falkland Oil and Gas could be viewed as a short-term high risk/high reward stock, with its share price having the potential to move sharply in either direction depending upon the results of the aforementioned drilling programme.

As such, it could be a sound idea to pair it up with one or more sector peers, since the oil and gas exploration space is hardly the most certain at the best of times.

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Sector Peers

With the oil and gas sector still reeling from the falling price of commodities, there appears to be a number of good value opportunities on offer. This is especially the case when the forecasts for the various companies are taken into account, with their present day valuations being rather high as a result of falling profitability.

For example, Genel (LSE: GENL) is expected to have made a loss when it reports its results this week, but is forecast to turn this around significantly over the next two years. In fact, Genel is expected to deliver a profit of £135m in 2016, which puts it on a price to earnings growth (PEG) ratio of just 0.2. This indicates that it offers excellent value for money at the present time.

Likewise, Soco International (LSE: SIA) is due to endure a tough 2015, but then bounce back strongly next year. As such, its forward price to earnings (P/E) ratio of 25.2 does not tell the whole story, with Soco’s PEG ratio of 0.2 indicating that it could be worth buying at the present time.

And with Nostrum (LSE: NOG) being relatively well financed and having the potential to significantly increase its production from 2017 onwards (when a new pipeline is expected to be completed), it could also prove to be a strong performer over the long term.

Looking Ahead

So, with Falkland Oil and Gas’s short-term future being relatively risky, it could be well worth adding other oil stocks to your portfolio. Certainly, it remains a very risky sector but, with the outlook for the likes of Genel, Nostrum and Soco International being relatively positive, now could be a good time to buy a slice of all four companies.

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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.

Peter Stephens has no position in any shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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