Is Oil & Gas Investments(LSE: UKOG) a buy only for brave investors?
Well, its just as risky as Gulf Keystone Petroleum(LSE: GKP), in my opinion.
If I were to take risks in the oil sector, Id rather choose Petrofac (LSE: PFC), which I believe is still an attractive buy in spite of a 41% rise this year.
Oil & Gas Investments
This certainly is not aninvestment for me after its +200% performance on Thursday, which gave it a market cap of about 50m. If I owned the shares, Id sell them right away.
The shares have not traded around this level for about two years, and if you had invested in 2010 then your current holdings would be worth 90% less than your initial investment.
The company said yesterdaymorning it estimated thatits Horse Hill-1 well in the Weald Basin had a total oil in place of 158m barrels per square mile, excluding the previously reported Upper Portland Sandstone oil discovery.
The Horse Hill licences cover 55 square miles of the Weald Basin in southern England in which the company has a 20.36% interest and this helped the stock soar.
Theres little visibility on financials, so Id rather move on to other candidates in the sector.
Gulf Keystone Petroleum
Anything can happen with Gulf Keystone Petroleum: it could be sold, most likely at a low take-out multiple, or it could issue more equity, say in the region of $150m neither of which is an ideal scenario for value investors.
What appears certain is that GKP is in dire straits and may need to raise fresh funds sooner rather than later.
Iraqi Kurdistan-focused oil producer Gulf Keystone Petroleum has reported a $248.2 million loss after tax for 2014 as the company said it was still owed around $100 million for crude oil it has sold, Reuters reported. Collecting credit has been a problem for some time and it still doesnt look any good, to be honest.
While the economic loss was not unexpected in fact, GKP was down only 2.5% for the day yesterday lots of uncertainty still weighs on the future of this company, whose balance sheet is clearly overstretched, as signalled by its enterprise value, which doubles its market cap.
Trading multiples also signal distress.
Petrofac
I do not dislike Petrofac, and I consider it to be a relatively safe bet in the oil sector in the light of its more defensive characteristics compared to those of other oil producers and explorers.
With a $5bn market cap, and forward earnings multiples between 10x and 9x forthe next couple of years, I believe Petrofac could still offer outstanding returns to shareholders for a long time.
The bears, of course, suggest it may be a good time to take profit now! But I disagree.
Although counterparty risk could weigh on its valuation, its financials look solid and the worst could be behind the company.This oilfield services group has an attractive forward yield above 4% should it come under scrutiny,Petrofac would have financing options because its balance sheet isnt particularly stretched, and more debt could sit on it.
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Alessandro Pasetti has no position in any shares mentioned. The Motley Fool UK owns shares of Petrofac. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.