A highly promising oil stock

published 20 February 2006

If it's high risk and high reward you're looking for, says the Investors Chronicle, then Afren (AFR:AIM, 61p) could be the stock for you.

A specialist exploration and production oil company, Afren is geographically focused on Nigeria, where it qualifies as an indigenous company on account of its board's wealth of experience in that region.

That in turn means it has access to assets that are "often denied to other UK companies", such as its 4.4% stake in the new Joint Development exploration block between Nigeria and Sao Tome. Under the Marginal Field Development Programme (MFDP), it has also been able to pick up two "near-term production assets" in the form of the Akepo and Ogodeh fields from Chevron as the latter reorganised its "peripheral" assets in the region.

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Assuming a conservative $50/bbl oil in 2006, followed by $40/bbl in 2007, Afren is forecast by Bridgewell Securities to generate £31m in profits on production of 4mmbbl of oil per day. That puts it on a 2007 multiple of just 3.6 times. That's almost too good to be true. Buy.

Charles has previously written for the MoneyWeek, giving readers his share tips regularly and covering other topics on the side such as stock markets and the economy. He has also written for The Business, Shares, Investors Chronicle and The Evening Standard, and Charles has presented on LBC and been a guest on BBC One and BBC World. Aside from his journalist background, Charles graduated as a chemist from the University of Oxford specialising in ligand gated ion channels.