This year has been a challenging one for investors in oil and gas exploration company Hurricane Energy(LSE: HUR). Its shares have fallen 50% despite many of its sector peers enjoying a boost from a rising oil price. However, its declining stock price could be an opportunity for long-term investors to buy it at a discounted valuation. As such, it could deliver impressive returns.
An uncertain year
One reason for the company's falling share price has been uncertainty regarding its management team. There have been criticisms of poor corporate governance levelled at the business this year. This led to the recent resignation of its non-executive chairman, who apparently felt that the company's standards of governance and leadership culture fell short of those expected of a publicly listed company.
Looking ahead, there are rumours that the company may seek a main market listing. In any case, it appears to have a bright future. Its placing in June raised sufficient capital to pay for an Early Production System at its Lancaster field. This is expected to lead to first oil production in 2019, with 17,000 barrels of oil per day (bopd) expected to be realised. This could fundamentally shift the company's financial performance and lead to an improving share price over the medium term.
Hurricane Energy may also benefit from a rising oil price. It reached a two-year high this year and investors now seem to be getting more optimistic about its outlook. With production on the horizon and the excess supply of the oil market not set to be a feature of its 2018 outlook, the company's recent share price fall could present a buying opportunity for the long run.
Also offering a potential buying opportunity is fellow oil and gas-focused company ADES International(LSE: ADES). The company provides offshore and onshore oil and gas drilling and production services in the Middle East and Africa. It reported positive third quarter performance on Friday, with its utilisation rate recorded at 77%. This maintains its five-year average of 90%. It also has a backlog of $401.7m, with bidding activity remaining strong. In fact, a number of tenders are due to close in the next three months, with the potential for positive news flow ahead.
With ADES forecast to post a rise in its bottom line of 127% in the next financial year, it appears to offer growth potential. Despite this, it has a price-to-earnings growth (PEG) ratio of only 0.1, which suggests that it offers a wide margin of safety at the present time. Certainly the outlook for the oil and gas industry is highly uncertain and is dependent upon the price of oil. However, with its performance continuing to progress as expected and it having strong earnings growth potential as well as a low valuation, it could offer strong share price growth.
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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.