Three junior oil stocks to buy

There's potential growth in the months ahead here and one of these popular stocks offers an attractive entry point to investors, say experts. Graeme Evans has the detail.

The potential for share price gains at three London-listed oil and gas stocks was highlighted by analysts today in the wake of updates from the trio.

Hurricane Energy, RockRose Energy and Range Resources all continue to attract 'buy' recommendations from Cantor Fitzgerald, with significant upsides seen on all three in terms of target prices.

The biggest of the companies reporting today is Hurricane, which has been attracting attention as it moves towards producing its first North Sea oil in the first half of 2019.

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Hurricane was founded in 2005 by Dr Robert Trice in the belief that fractured basement reservoirs represent a significant untapped resource.

It has since built a portfolio of licences on the Rona Ridge on the UK continental shelf, to the west of the Shetland Islands. This has led to a number of significant discoveries, including Lancaster, Lincoln, Halifax, Warwick and Whirlwind.

The Lancaster field, which was previously drilled in 1974 and later abandoned, was the first prospect targeted by Hurricane in 2009. 

It is also the company's most appraised asset, with five wells drilled to date. The company is now proceeding towards the first production phase of Lancaster, making it the UK's first basement field development.

Source: interactive investor  Past performance is not a guide to future performance 

Together with other fields, Hurricane assets amount to reserves and resources totalling 2.6 billion barrels of oil equivalent. This month, Spirit Energy farmed-in to 50% of the Lincoln and Warwick assets, committing to a five-phase work programme targeting full field development in 2021.

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Cantor's analysts said: "We believe that investors and industry participants are (finally) waking up to the potential of the basement play on the UK continental shelf.

"With Hurricane offering the only route to exposure in this exciting play, we see the stock presenting a very attractive entry point for investors."

Noting the "substantial cashflows on the horizon", Cantor reiterated its 'buy' recommendation and target price of 87p.

They wrote: "We anticipate the realisation of near term production as offering an opportunity for a re-rating of the stock, and believe the Spirit deal delivers further opportunities for value to be unlocked.

"The path to monetising the world class asset base is clear, and we believe that investor interest can only grow as the company continues to deliver on targets."

RockRose was established in 2015 as a production and infrastructure company capable of working in a world of sub-US$50 oil prices.

The last year has been a transformational one for the company, with maiden production from its initial UK acquisitions and soon to be bolstered by the addition of a package of Netherlands assets from Dyas.

This will more than double current production to over 11,000 barrels of oil a day, which Cantor said made the company a "serious player in the North Sea".

Cantor believes significant cash generation from the acquisition will exceed the cost of decommissioning, with the company forecast to be cash positive through to 2030.

This enabled RockRose to return £1.50 a share to investors earlier this year, with Cantor envisaging further distributions in the future.

The analysts added:

"The strong performance in the period has been very encouraging, and the transformational impact of the Dyas acquisition will be realised in the second half."

The company, which posted half-year profits of US$ 5 million today, has also increased its interest in the Arran field to 30.43%, which should provide longer term production uplifts and offer further upside.

Cantor reiterates its 'buy' recommendation and target price of 641p. The stock, which stood 127p a year ago, rose 5p to 411.4p today.

Range Resources, which has projects in Trinidad and Indonesia, buoyed investors by announcing a waterflooding programme aimed at increasing oil production rates on part of the Beach Marcelle field in Trinidad. 

Cantor said:

"This is a low cost means to enhance production and we remain encouraged by the longer term opportunity to increase the recovery factor at Beach Marcelle and the other fields in the portfolio."

Whilst waterflooding typically takes some time to deliver the production increases, Cantor said the expansion scheme was "a sensible and low cost means to lift production in the Beach Marcelle area."

They reiterated their 'buy' recommendation and target price of 0.67p. 

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.