Tullow Oil plc isn't the only top value stock I'd buy right now
The prospects for the oil and gas industry have improved significantly in the last year. A rising oil price has eased pressure on the industry and led investors to adopt a more positive outlook for the sector.
Alongside this, companies such as Tullow Oil(LSE: TLW) have made major changes to their business models. For example, cost and debt reduction have become more important, while production growth has also been necessary due to the lower oil prices of recent years. As such, the prospects for the industry remain bright and there could be buying opportunities on offer.
Impressive performance
One such opportunity could be small-cap oil and gas company Echo Energy(LSE: ECHO). It released an update on Monday regarding its progress in Bolivia, with it having worked to progress the exploration opportunity in Huyaco and Rio Salado. This follows the signing of the joint venture agreement with Pluspetrol Bolivia, as well as the Rio Salado technical evaluation agreement between Pluspetrol and YPFB.
The company has been able to build a more robust model across the acreage under consideration. This follows complex advanced techniques that were used to enhance seismic data. The company will now focus on defining the prospectivity across the Huyaco and Rio Salado acreage, while also considering other complementary opportunities in the region.
Alongside its update on operations in Bolivia, Echo Energy also announced the appointment of a COO. With the company seeming to have a sound strategy through which to offer improving news flow alongside a stronger outlook for the wider oil and gas sector, its share price performance could get a boost over the medium term.
Changing strategy
As mentioned, Tullow Oil also appears to have an improving outlook due to a change in strategy. The company has focused on boosting its production in recent years, with the addition of the TEN project to its producing asset base. This is expected to lead to a return to profitability in the current year, which could create improving investor sentiment.
With Tullow Oil currently trading on a forward price-to-earnings (P/E) ratio of around 13.5, it seems to offer good value for money. Certainly, its debt levels remain high and they could be unsustainable should the oil price fall. However, with leverage falling, the company's risk/reward ratio may improve in future.
The prospects for the oil price appear to be positive. Reduced supply from OPEC countries appears to have provided a catalyst to the price of black gold. Further restrictions could mean that demand and supply growth remain in equilibrium over the medium term.
As such, while a return to triple-digit prices may not be on the cards, the outlook for the industry is perhaps the most positive it has been for a number of years. Therefore, stocks such as Tullow Oil could be worth buying now for the long term.
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Peter Stephens has no position in any of the 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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