May 8 Bahamas Petroleum Company's shares climbed 40 percent after Prime Minister Hubert Ingraham, who said last month he would not approve any drilling for oil if re-elected, conceded defeat in Bahamas' general election.
Prime Minister-elect Perry Christie has close ties with Bahamas Petroleum, Ingraham had earlier alleged. But Christie denied any links to the company.
"This is hugely positive," Gerry Donnelly of FirstEnergy Capital said. "This removes a lot of the uncertainties going forward to help Bahamas Petroleum get on with its work programme and bring in a partner to be able to drill."
The company's drilling permits expired last month. But it maintains it has fulfilled its required commitments and its permits have been renewed till 2015. The government, however, denied this.
Bahamas Petroleum holds five licenses to explore for oil in the country, whose waters likely hold 1 billion barrels of oil reserves, according to analysts.
Ingraham initially said he would not allow any drilling for oil if re-elected. But he later said it could be authorized once appropriate regulatory procedures were in place.
Bahamas Petroleum's shares have lost about a fifth of their value over the last month - after media reports raised fears the company's permits may not be renewed - and has seen volatile trading since.
"It was put in the middle of a political process it didn't want to be a part of... and I think it stood apart from the process," said Donnelly, who has a speculative buy on Bahamas Petroleum stock.
The company's shares were up 20 percent at 9.88 pence at 0803 GMT on Tuesday on the London Stock Exchange. (Reporting by Brenton Cordeiro in Bangalore; Editing by Joyjeet Das)