After BPs market-pleasing turn earlier this week, the $7.89 billion write-off atRoyal Dutch Shell (LSE: RDSB) was an embarrassingpratfall. It also shows the danger of investing in oil stocks given the crashing price of black gold. If ever a sector was ripe for a recovery, this is it.
Shellswrite-offs have cleared most ofthe bad news out of the way, but it doesnt resolve the underlying problem of the oil price collapse. Like BP, downstream profits are holding up, but cheap oilhas cost Shellbillions in upstream impairments, redundancy, restructuring, abandonedprojects, not to mention itsNapoleonic retreat from the frozen wastes of Alaska.
We often talk about juicy yieldson the Fool. Shells looks positively succulent at 8.71%, but unless oil dramatically reverses its collapse, it could leavea nasty aftertaste. Shell willdo everything to maintain its proud post-war dividend record but, like Napoleon, it may finally meet its Waterloo. I have no idea where oil is going next but it needs to move upwards fast orShellwill end up going nowhere.
Falcon Oil & Gas(LSE: FOG) has shown forward momentum lately, its share price defyingwider market worriesto rise 8% in the last month. Smaller oil explorers are mostlyhurting in an era of cheap oil, but Falcon is flying on recent drilling success in the Beetaloo Basin, Australia, where it retains a 30% stake with co-venture partners Origin and Sasol. Better still,Falcon is fully carried for all 2015 drilling and evaluation costs.
Further success could drive the price higher, and Falcon hasdecided tostarthorizontal drilling at the site in the coming weeks,ayearsooner than planned. With six more projects across Hungary and South Africa, investors have plenty to pin their hopes on.
Falcon looks attractive with no debt and a nine-well programme running until 2018. Better still, at 7.25p it is still trading well below its year-high of 10.75p. It maylook like a rarepoint of light in a dark and troubled sector, but it remainsrisky. Last summer Charles Stanley called Falcon a buywith a target price of 19.7p. Ouch.
Premier Or Championship?
Last time I looked atPremier Oil (LSE: PMO) it was up 30% in a month on a more positive outlook for the oil price. Sentiment has slipped since then, and so has Premier. Itsshare price has now halved in the last six months. Oil needs to hit at least $60 a barrel to revive Premier but the signs dont look good, and Goldman Sachs is predicting a rough start to next year as well.
Premier is on courseto make a pre-tax loss of 95m this year, but that is forecast toconvert intoa 53m profit in 2016. As we have just seen, a slight rise in the oil price equalsa sharp rise in Premiers share price.Trading at just 67p, well below its year-high of 262p, this isa tempting buyfor oil bulls. The problem is that nobody knows wherethe oil price will go next. Gambling is absolutely fine, as long as you only do it with a small chunkof your portfolio.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.