Is it too late to buy Roxi Petroleum plc after its shares jumped by 25% today?
Central Asian oil and gas company Roxi Petroleum(LSE: RXP) has risen sharply today after updating the market with news of its BNG operations. Could its shares continue to rise, or is it now too late to buy a slice of it for the long term?
Roxi Petroleum's update includes positive news regarding its shallow and deep wells at the BNG Contract Area.
In terms of shallow wells, it has experienced success with Well 141, with drilling having commenced in August 2016. The well was drilled to a total depth of 2.5km on a turnkey basis at a total cost of $1.25m. Five oil-bearing intervals have been identified for testing. At the first of which the well was perforated over 6m at between 2,230m and 2,236m. Early flow test results indicate that the well is producing at the rate of 220 barrels of oil per day (bopd) using a 3mm choke and 480 bopd using a 5mm choke.
Regarding its deep wells, Deep Well A6 was spudded in November 2015. Roxi decided to complete the well at a depth of 4,528m based on the analysis of mud logs. Although preliminary, they suggest that the well has penetrated oil bearing intervals. Roxi will make a further announcement after the completion and analysis of a wire-line log, subject to which it will conduct flow testing.
Clearly, the market is highly encouraged by Roxi's update. This improved investor sentiment could continue in the short run and push the company's share price even higher. And if the price of oil continues to rise as it has done in 2016, sentiment towards Roxi could improve and mean that it's not too late to buy a slice of the company.
Go for diversification?
However, Roxi remains a relatively small and risky purchase within an uncertain energy sector. The price of oil could come under pressure due to an imbalance between supply and demand. According to recent forecasts, this situation could worsen and it may therefore be prudent for investors to focus their attention on a larger, better diversified and more financially sound energy stocks such as Shell (LSE: RDSB).
Shell has a large degree of geographic diversity and is positioning itself to take advantage of rising demand for liquefied natural gas (LNG) over the coming years. Furthermore, its integration with BG provides the scope for significant synergies that are expected to boost cash flow over the medium-to-long term. This could enhance Shell's dividend and make its 7.1% yield more affordable. It could even mean a rapid rise in Shell's shareholder payouts.
The future of the oil and gas industry is highly uncertain and while Roxi has released positive news today, sticking with a lower risk peer such as Shell seems to be a better idea. Shell may not offer 25%-plus upside in one day, but its shares should perform well and offer a relatively high degree of stability.
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Peter Stephens owns shares of Royal Dutch Shell B. The Motley Fool UK has recommended Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.