Tuesday tips round-up: BG Group, Faroe Petroleum

The headwinds faced by BG Group in Egypt are abating, but others continue to hold it back. An agreement reached over the weekend will see the company invest $2bn alongside two Egyptian outfits in its existing field there. Part of the deal will see the outstanding balances owed to it by Cairo paid. It can also hope to fetch a higher price for the gas produced. However, at the same time, on the other side of the world, the low price of oil will reduce the profits it derives from its LNG side to between $700m to $1bn. That compares to the better-than-expected $2.5bn achieved in 2014.

Then there are the “unknown unknowns” at its Brazilian operations, as the company’s chief operating officer put it at the company’s full-year results, related to the political scandal surrounding state-owned oil giant Petrobras. That could negatively affect the development of its huge reserves off the coast of Brazil. Selling now on 40 times earnings the stock can be expected to recover, “though it is probably too early to start buying again.” Avoid for now, says The Times’s Tempus column.

It may seem like a peculiar time to invest in the oil and gas sector, but shares in Faroe Petroleum are worth a punt, Tempus reckons. By dint of its exploration activities taking place in the Norwegian sector of the North Sea, as opposed to in Britain’s territorial waters, the firm benefits from that country’s generous tax incentives for explorers. Oslo cheerfully refunds 78p of every one pound spent on exploration and development.

The company also got the timing almost perfect on the £62m in fresh capital which it raised last summer, before the drop in the price of oil. Capital spending is expected to remain light this year and its four test wells can be fully funded from existing cash flow. Furthermore, two of the aforementioned prospects are near the promising Pil discovery made in 2014.

“Faroe looks as good a punt as any and sentiment will one day return. A highly speculative long-term buy, then; be prepared to lock them away, ” said Tempus. “Buy long term,” the paper added.