Why Carnarvon Petroleum Limited gained 700% in a year

Carnarvon Petroleum Limited (ASX: CVN) shareholders enjoyed more gains on Wednesday as the company’s share price climbed almost 30% amid news of more oil discoveries in Western Australia’s north.

Shares in Carnarvon Petroleum were locked in a trading halt pending an announcement concerning the discovery which was released on Wednesday and triggered a wave of investor activity.

The oil and gas exploration company has seen its share price rise rapidly since news of the discovery emerged in July.

Carnarvon Petroleum shares were trading for around 14.5 cents at the start of July but are now changing hands for around 63 cents.

Fairfax Media Limited (ASX: FXJ) has called the find a “major new oil discovery in Western Australia (which) may put Quadrant Energy’s scuppered public listing back on the table”.

Quadrant Energy, which is a joint-venture partner with Carnarvon Petroleum in the Dorado-1 Well, where the discovery was made, scrapped its plans to list on the ASX earlier this year.

With an 80% stake in Dorado, some believe the latest announcement linked to Dorado may reignite a Quadrant Energy IPO.

All of this sounds promising for potential investors in Carnarvon Petroleum.

But there are some factors that should be considered before investing in Carnarvon Petroleum.

While the latest announcement has been touted as a “major” discovery, it could also be described as an extension of a previous find.

Carnarvon Petroleum has made a series of recent announcements concerning Dorado which have coincided with its surging share price.

Secondly, Carnarvon Petroleum has a 20% stake in Dorado and, as such, the rewards it reaps from Dorado will be reflected by its share of the well.

Thirdly, any investment in Carnarvon Petroleum would be highly speculative as the company is yet to turn a profit.

That it is not to diminish from Carnarvon Petroleum’s latest announcement, but merely to state that any potential investment in the company would require a lot more digging.

Waiting for more information on the latest find could prove a prudent move.

Carnarvon Petroleum Managing Director Adrian Cook said the hydrocarbon volumes associated with the find will be announced to shareholders and investors as soon as possible.

While the Carnarvon Petroleum share price has gained around 740% over the past year, and could keep flying, other more established energy companies such Santos Ltd (ASX: STO) or Woodside Petroleum Limited (ASX: WPL) may prove safer bets.

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Motley Fool contributor Steve Holland has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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