The Investment Column: Enterprise Oil's bright prospects

IT IS HARD for an ebullient Belgian like Pierre Jungels to underplay the performance of Enterprise Oil. But the group's chief executive probably did so yesterday when talking about prospects for the UK's biggest exploration production company. The 1997 financial results were down, pummelled by falling crude prices. Pre-tax profits slumped 28 per cent to pounds 255m but the after-tax profit, more relevant to an exploration stock, only fell from pounds 142m to pounds 127m.

The results were in line with expectations, but Mr Jungels certainly did not gloss over the problem of the sub $14 per barrel oil price. He expected a number of projects that Enterprise is involved in to be hit, including the giant Clair Field where it has a 15 per cent stake. Compared with the frothy presentation given by Lasmo last week this was dour stuff but Enterprise is anything but a dour company. It is conservatively managed but is sitting on what should be an exciting future. There were no big oil finds in 1997 but the company has already been lucky in 1998 and with 30 wells being drilled this year there should be more good news. Enterprise's future production profile looks very promising and reserves are up 13 per cent on last year.

Best of all Enterprise still has a very low cost base. It let costs rise slightly last year and this affected profitability, but it has launched a crackdown and can still operate vastly more cheaply than most of its peers. Enterprise has also got its eggs in the right basket. Its core areas of activity are the UK and Norwegian sectors of the North Sea, US Gulf and the increasingly hopeful Italy.

This year's financial performance depends on what happens to the oil price. Even on the most optimistic forecasts Enterprise, whose shares fell 8p to 579p, is trading on a steep multiple of 28. That said future prospects look good. If you think oil prices will recover strongly, then Enterprise should be one for the investment portfolio.