Titan Inv Partners – UK Oil Exploration & Production sector – is the bear market finally over?

Investors in pretty much any Oil E&P stock – major or minor – over the last few years have veritably had their backside handed to them.

From majors like Premier Oil & Cairn Energy to midcaps like Gulfsands Petroleum, Gulf Keystone Petroleum, Xcite Energy and Providence Resources to the minnows such as Enegi Oil and the Falkland’s plays like Rockhopper and Borders and Southern, price falls of 80% + have not been uncommon.

Those stocks that have drilling programs ahead of them and balance sheets that cannot presently support the costs, hence the need for farm-outs, have been punished the most. Take Rockhopper and Bowleven for example. Even where they have achieved farm-outs and thus dramatically increased the prospects of first oil and positive cash flows in the future, the stocks have continued to fall. Indeed, such has been the fall in the sector while the oil price has remained resilient, that the aggregate industry 2P (proved and probable) reserves relative to the oil price is at the lowest it has been almost on record.

In looking at a whole host of “value” Oil E&P stocks this weekend, what stands out like a beacon to me however is that almost universally the stock prices are refusing to go lower and indeed display the classic signs of the very end of a bear market/the beginnings of a bull market.

I show below the share price charts of a wide disparity of oilies with operations in multitude parts of the globe and various annotations being made.

BORDERS & SOUTHERN WEEKLY CHART

CHARIOT OIL & GAS WEEKLY CHART

FALKLANDS OIL & GAS WEEKLY CHART

GULFSANDS PETROLEUM WEEKLY CHART

PREMIER OIL WEEKLY CHART

ROCKHOPPER EXPLORATION WEEKLY CHART

XCITE ENERGY WEEKLY CHART

OPHIR ENERGY WEEKLY CHART

Notice anything in common? The price patterns are all “basing” formations where volume has risen in recent months and the RSI’s too while the stock prices plateau or have begun moving modestly higher. Coupled with the exceptional fundamental value this is a combination of both technical and fundamentals aligning in tandem – something we pay very close attention to. Bear markets don’t go on for ever and at some point value becomes so compelling and sentiment so depressed that the easiest path then is up. We believe we have reached this point in this sector.

In our Natural Resources fund here at Titan we are heavily overweight Oil E&P plays now, holding positions in many of the stocks mentioned here, and at present we are geared around two times – towards the upper end of our limit of X 2.5 such is our conviction that the sector is now at the ground floor of a multi-year ascent. We hold a well-diversified portfolio of what we believe are exceptional value plays and that we expect to deliver strong capital returns over the next 6 – 18 months.

Below is a chart of our returns, against a difficult backdrop for the sector, since inception on 1 July 2013 to 22 Aug 2014.

Past performance is not necessarily a guide to the future. Returns are gross before the application of Titan’s fees.

If you’d like to join us where we invest our OWN capital in backing our views, and best of all, positive returns are completely TAX FREE*, then click the image below for more details or email us at info@titanip.co.uk

This piece should not be taken as an advocation to buy (or sell) these instruments and you should always take independent financial advice in relation to your own circumstances. *Spread betting is currently tax free but legislation can change.