One growth candidate I'd buy alongside BP plc

I reckon UK onshore oil and gas explorer and producer IGas Energy(LSE: IGAS) is a good candidate to spice up a portfolio alongside oil major BP (LSE: BP). During 2017, IGas carried out a major financial restructuring exercise, raising more money from investors by issuing new shares and converting debt holders into shareholders.

Existing shareholders suffered dilution of their interests, but now own stock in an enterprise that has cleared much of its debt and, in the process, secured financial backing from some strong - and presumably knowledgeable - players in the sector.

Steady cash flow

Today's full-year results underline the firm's improved position now. Revenue rose 17% during 2017 compared to the year before and net cash from operations came in at £6.7m down from £12.4m the year before. The big financial feature of the report is that net debt plummeted almost 94% to just over £6m, which puts the firm on a much more stable footing.

Production during 2017 was steady at 2,335 barrels of oil equivalent per day (boepd), which is the same figure as that achieved in 2016. Looking forward, the directors expect a similar outcome in 2018 with production coming in between 2,300 and 2,400 boepd. Such steady production should keep the cash flowing into the IGas coffers. Chief executive Stephen Bowler said: "The expectation of ongoing free operating cash flow provides us with a solid platform and financial flexibility to execute our growth plans."

The plunge in commodity prices led to a difficult two-year period for the firm along with the rest of the industry, but the directors say that a more stable outlook for commodity prices now leaves it well positioned for its next phase of growth. The company is starting to drill and flow-test appraisal wells to assess the commercial viability of its shale resources, which could go on to deliver upside for shareholders from here. I think 'right now' is a good time to dig deeper into the opportunity with IGas.

Combining income and growth

If you do decide to take the plunge and buy some IGas Energy shares, why not pair them in your portfolio with some BP stock? The main attraction is the oil major's fat dividend. At the recent share price of 462p, the forward dividend yield for 2019 runs just above 6%, which is handy income to collect as you wait for the upside potential from IGas to materialise.

In its full-year results report back in February, BP declared underlying profit up 139% compared to the year before, organic cash flows back in balance, downstream underlying profit up 24%, upstream production up 12%, a reserves replacement ratio of 143% and a restarting of the share buyback programme. It's amazing what a difference the recovering oil price makes, and with forecast earnings now set once again to cover forward dividend payments, the dividend no longer looks threatened.

The firm expects underlying production during 2018 to be higher than 2017 due to "the ramp-up of major projects.," which reinforces my view that BP could serve investors well in the coming years.

Buy-And-Hold Investing

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended BP. 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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