Should you sell BP plc and buy The Parkmead Group plc after gas production rises sixfold?
UK and Netherlands-focused oil and gas company The Parkmead Group(LSE: PMG) has released an upbeat set of full-year results. How upbeat? For example, its Netherlands gas production has risen more than sixfold. Alongside a bright long-term future, does this make it a better buy than oil and gas peer BP(LSE: BP)?
Parkmead's progress in the last financial year has been impressive. It has been able to make considerable improvements to its long-term outlook despite a challenging oil price environment. It discovered and brought on-stream a new gas field at Diever West within a time period of just 14 months. This has helped the company's gas production to continuously beat expectations, with Parkmead's production averaging around 34m cubic feet per day during June.
Parkmead's low-cost, onshore work programme has acted as a natural hedge to low global oil prices. It has allowed production from four separate gas fields in the Netherlands to have an average operating cost of $14 per barrel of oil equivalent. This has helped to boost Parkmead's cash flow and has ensured that the company is cash flow positive on an operating basis.
And Parkmead's reserves and resources have increased significantly through two licence acquisitions. They help it to remain well-placed to take advantage of the ongoing lower oil price environment, with its significant cash resources, lack of debt and low-cost profile probably helping it to outperform a number of sector peers in the future.
Of course, Parkmead is set to remain lossmaking in the current financial year. As well as its relatively small size, this shows that it remains a relatively high risk option within what's an uncertain sector. Oil and gas prices could remain highly volatile for a while, and it may be prudent for investors to seek out stocks within that space that offer a high degree of diversity.
That's a key reason why BP remains an attractive buy. Its asset base may not be as strong as it was prior to the Deepwater Horizon oil spill in 2010. However, it offers an appealing risk/reward profile over the long term, as well as greater stability than Parkmead. And with BP being highly profitable, it's able to pay a generous dividend that's due to be covered by profit next year. BP's yield of 7.2% will boost its total return and could make a significant difference if capital gains are difficult to come by in an uncertain environment for oil and gas companies.
As such, selling BP and buying Parkmead doesn't appear to be a sound strategy. Both stocks have appeal and could deliver strong growth over the medium term. However, BP's lower risk profile and greater diversity make it the favoured choice for patient investor.
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Peter Stephens owns shares of BP. The Motley Fool UK has recommended BP. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.