Shares in Falkland Oil and Gas (LSE: FOGL) are up by as much as 10% today, which means that since the turn of the year their value has risen by a whopping 60%. In contrast, shares in Gulf Keystone (LSE: GKP) are down by 6% today, which means that they have declined by an incredible 46% year-to-date.
Looking ahead, though, could Gulf Keystone now be a better buy than Falkland Oil and Gas? Or, should you stick with the latter due to its brighter prospects?
Although both companies have considerable long term potential, their current situations are markedly different. For example, Gulf Keystone is facing a very challenging problem in terms of it being owed millions by the Kurdistan Regional Government (KRG). Although the first payment has been made and a plan is in place for further payments to follow, Gulf Keystone has decided that it cannot afford to take the risk of delayed or defaulted payment anymore, and so has now ceased exporting oil in favour of internal sales.
This means that, while its cash flow situation may improve, it will receive around 20% less for the oil it sells than it would have done if it had exported it. As such, Gulf Keystones profitability has taken a hit and this has undoubtedly made its shares seem much less appealing.
In contrast, Falkland Oil and Gas has no such cash flow challenges. It recently stated that it has sufficient cash through which to fund the drilling of the first of four wells and, with no debt on its balance sheet (and around 65m of cash) its financial future appears to be relatively certain when compared to that of Gulf Keystone. Furthermore, the outcome of the drilling process should provide guidance on the potential resource available, thereby making the present time a highly exciting one for investors in Falkland Oil and Gas.
While the Falkland Islands are a disputed territory and there is considerable political risk for Falkland Oil and Gas, it appears to be in a much more stable situation than Gulf Keystone. As well as having a better cash position, Iraq/Kurdistan (in which Gulf Keystone operates) remains very uncertain and the companys operations could be set back by the ongoing military operations in the surrounding area.
As a result, Falkland Oil and Gas seems to be a much more appealing investment at the present time than Gulf Keystone. Certainly, its future is highly dependent upon the outcome of the planned drilling operations but, with a sound financial position, relatively manageable political risk, and improving investor sentiment, it could prove to be a rewarding, albeit risky, purchase right now.
Of course, Falkland Oil and Gas isn’t the only company that could be worth buying right now. That’s why the analysts at The Motley Fool have written a free and without obligation guide called 10 Steps To Making A Million In The Market.
It’s a step-by-step guide that could make a real difference to your portfolio returns and, as a result, 2015 could prove to be an even more prosperous year for your finances.
Click here to get your copy of the guide – it’s completely free and comes without any obligation.
Get FREE Issues of The Motley Fool Collective
Get straightforward advice on whats really happening with the stock markets, direct to your inbox. Help yourself with our FREE email newsletter designed to help you protect and grow your portfolio wealth.
By providing your email address, you consent to receiving further information on our goods and services and those of our business partners. To opt-out of receiving this information click here. All information provided is governed by our Privacy Statement.