Should you be tempted by UK Oil & Gas Investments plc's 160% rise in 2017?

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Oil well of the nodding donkey variety

The last few months have generally been positive for the oil and gas industry. Investor sentiment seems to have improved significantly as the price of oil has risen to its highest level in over two years. This has prompted higher share prices for a range of oil and gas companies.

However, few have been able to match the performance of UK Oil & Gas Investments(LSE: UKOG) during the course of the year. Following positive news flow regarding its assets in southern England, the company's shares have soared so that they are now up 160% since the start of the year. Could more growth be ahead? Or is it too late to buy the company for the long term?

Uncertain outlook

Of course, the outlook for any oil and gas exploration and development company is difficult to assess. Its future share price prospects are largely linked to the news it releases regarding its operations. Positive drilling results are likely to lead to an improved share price performance. Conversely, negative operational performance may mean investors lose interest in its prospects.

Therefore, over the medium term the share price performance of UKOG may prove to be highly volatile. What may work in its favour, however, is the prospects for the oil price. They appear to be generally positive, given that OPEC and non-OPEC countries seem keen on the idea of providing further support to the oil price in the form of supply restrictions. This could help to keep any supply surplus in check during the next year, which may allow the price to continue with its upward trajectory.

Clearly, a higher oil price may not create the conditions necessary for UKOG to make 160% gains in 2018. And recent difficulties have caused some investors to reconsider their views on the company's outlook. However, with the business focused on what appear to be relatively low-cost operations and it having significant potential based on estimates, it could prove to be a sound, albeit risky, buy for the long run.

Growth potential

Of course, there are other oil and gas exploration companies which may be worth a closer look. Reporting on Monday was Central Asian oil and gas company Caspian Sunrise(LSE: CASP). It reported that contractors are on-site at its Deep Well A5 at its BNG Contract Area in Kazakhstan, and are expected to commence the 90-day flow test before the end of November. Furthermore, Shallow Well 146 has reached its revised total depth of 3km. Based on information analysed to date, Well 146 may resemble Well 143. It is producing at a rate of 600 barrels of oil per day (bopd).

Looking ahead, Caspian Sunrise may also benefit from a rising oil price. Investor sentiment has picked up markedly in the last month, with the company's share price rising by around 25% during the period. As with UKOG, the company is highly dependent upon future news, but seems to offer high reward potential for the long term.

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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.


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