Angelos Damaskos, manager of the Junior Oils Trust (GB00B01YQF73), says Faroe Petroleum (FPM) should benefit from new finds in the North Sea.
"The North Sea continues to be an exciting place for smaller operators," says Mr Damaskos. "New finds, such as the North Uist discovery, west of the Shetlands, where Faroe Petroleum is involved, are notable and the use of existing infrastructure in many parts of the region reduces the costs of production considerably.
"The Junior Oils Trust has approximately 35 per cent of its portfolio invested in companies exploring and producing oil and gas in UK and Norwegian waters. We believe that the political stability, higher margins and the high activity levels of the region is likely to deliver superior returns over the medium term.
"Smaller oil shares appear to have found support in the year to date, exhibiting lower volatility compared with recent years. Weak holders have come out of the sector, with current registers populated by investors who are attracted by fundamentals and the deep under-valuation of listed oil companies. Well capitalised, producing smaller companies, with active exploration programmes that could add significantly to reserves, have survived the last two bear market years and are likely to benefit first from a re-rating in the near future."
Investors Chronicle rates Faroe Petroleum a buy on the grounds that successful exploration could de-risk some of its prospective resources, bringing its valuation estimate to 232p - well above the current share price. Read our last update
