Have 88 Energy Ltd, Premier Oil PLC And Petrofac Limited Finally Turned A Corner?

Photo: Ken Doerr. Cropped. Licence: https://creativecommons.org/licenses/by/2.0/
Photo: Ken Doerr. Cropped. Licence: https://creativecommons.org/licenses/by/2.0/

Shares in oil producer Premier Oil(LSE: PMO) have soared by 28% in the last month and many investors may be wondering if now is the right time to buy them.


Clearly, the rise in the oil price has had a hugely positive impact on the wider oil sector and this was a key reason for Premier Oil's staggering growth in such a short period of time. However, with oil coming under pressure in recent trading sessions and having the potential to fall in the short run, there are no guarantees that it will act as a positive catalyst on Premier Oil's share price moving forward.

Despite this, Premier Oil could still be worth buying - especially for less risk-averse investors. That's because the company has a relatively appealing asset base and is attempting to take advantage of the current low-oil-price environment by strengthening its long-term profit potential. For example, it has already engaged in M&A activity through the purchase of EON's North Sea assets and more acquisitions could lie ahead.

In tandem with this strategy, Premier Oil is also seeking to reduce costs and become more efficient. As such, it seems to have a sound plan through which to survive the current challenging trading conditions and also deliver improved profitability in the long run. So, while further pain can't be ruled out, Premier Oil could be a highly profitable investment.

Road to profitability

Also recording impressive share price growth in recent weeks has been resources support services company Petrofac(LSE: PFC). Having fallen by 42% in 2014, its shares have risen by 29% since the start of 2015 as investor sentiment has improved, despite disappointing financial performance. In fact, Petrofac's bottom line fell into lossmaking territory in 2015 as operating conditions took their toll on its profitability.

As with Premier Oil, Petrofac is also seeking to become more efficient and it too has a relatively strong order book. This should provide its investors with confidence in the long-term prospects for the business and is set to return the company to profitability in 2016. With Petrofac forecast to deliver growth in earnings of 8% in 2017, it appears to be on the right track and may well have turned a corner. As such, buying while its shares trade on a price-to-earnings-growth (PEG) ratio of 1.2 seems to make sense.

Take a risk?

Meanwhile, shares in 88 Energy(LSE: 88E) have risen by an incredible 670% since the turn of the year following a vast shale discovery in Alaska. This has clearly caused investor sentiment to jump since the majority of its acreage in the US state is within a thermal maturity sweetspot. This indicates that there's huge potential for long-term profitability, although 88 Energy remains a business lacking revenue at the present time. Therefore, it continues to be relatively high risk.

Clearly, for less risk-averse investors, 88 Energy will be of huge interest. Its shares could continue to rise and the company does appear to have turned a corner following a two-year period that saw its share price fall by 82% (between 2013 and 2014). But with the oil and gas sector being so cheap at the moment, there may be better options for most investors elsewhere.

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Peter Stephens owns shares of Petrofac. The Motley Fool UK owns shares of and has recommended Petrofac. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.