67 WALL STREET, New York - November 25, 2012 - The Wall Street Transcript has just published its Oil and Gas Investing Forecast Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Oil & Gas Investing
Companies include: China Petroleum & Chemical Cor (SNP), PetroChina Co. Ltd. (PTR), CNOOC Ltd. (CEO), Valero Energy Corp. (VLO), Exxon Mobil Corp. (XOM), Chevron Corp. (CVX), BP plc (BP), Enersis S.A. (ENI), Total SA (TOT), Helix Energy Solutions Group, (HLX), Peabody Energy Corp. (BTU), Cameco Corp. (CCJ) and many others.
In the following excerpt from the Oil and Gas Investing Forecast Report, an expert money manager discusses the outlook for the sector for investors:
TWST: So where is the macro telling you to look right now?
Mr Guinness: I've run this fund for 13 years, and as I look back, I can see definite phases. From 1999 to 2000, the big deal was the oil prices recovering from being oversold. The place to be was the service stocks, which had got completely crushed, and some of the independent oil companies. Not in the super-majors and the big integrated stocks.
And then from 2000 to 2003, the world was much much more difficult. And basically, the name of the game was to spread your investment capital around. The oil price was gyrating, gas prices similarly, markets were falling, tumbling and so on. We sold most of our service stocks and retreated into good value, midcap integrated and exploration and product companies.
And then from 2003 to 2008, powerful trends began to re-establish themselves, most notably a strongly rising oil price, followed later by a rising natural gas price. Quite early on we went into oil sands and emerging market large caps, both of which did well for us. We later switched the fund at one stage quite heavily toward gassy E&Ps, and toward the end of the phase, we had a good exposure to independent refiners exploiting a boom in their margins in 2006 and 2007 - for example, companies like Valero (VLO).
Then in 2008, we saw a classic price spike in the oil price. We worried what would come next. We had done extremely well out of holding stocks that were commodity-price sensitive, and so we decided to try and shift the portfolio into the safer large-cap integrated stocks, and we did that. And we actually broke one of my portfolio construction rules, again. Instead of having each unit at 3.3% for the integrated, we basically ramped up the unit size from 3.3% to 4%. It was a risk-control mechanism.
Then from 2009 to this June, oil prices and gas prices have been quite volatile, and the name of the game has been to make tactical bets, buy stocks that are cheap, sell them when they get expensive. Recently, we have had good exposure to independent U.S. refineries. I think their strong recovery, however, is beginning to slow, and you have to be more careful now. We still have a good weighting to large-cap integrated stocks at the moment.
We also have put about 12.5% of the portfolio back into emerging markets and a similar amount into service stocks that give exposure to recovering Gulf of Mexico activity and the ramp-up in horizontal drilling and hydraulic fracturing.
In summary, about half the portfolio is in relatively stable large-cap stocks, whether integrateds, oil sands or independent refiners - your Exxons (XOM) and Chevrons (CVX), your BPs (BP) and Shells (RDS-A). We've had probably too much in the European stocks, like ENI (ENI) and Total (TOT), but they are very, very cheap now. We were very pleased that one of our oil sands stocks got taken over the other day. Nexen (NXY) was taken over by a Chinese company, giving it a 60% uplift. And we have three independent refiners who have motored.
Rather surprisingly to us, the U.S. refining industry ...
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