Is It Time to Sell Oil and Gas?

Assessing the current market landscape

It’s Dr John this morning and he’s asking if if it is time to lighten up on oil and gas, given the recent run they have had. It’s a question I too was considering a fortnight ago. Dr John has lightened up a little bit, but, longer-term, the story is too compelling to not have some exposure. Read on to find out more …

---

My personal portfolio of Canadian and American Oil and Gas stocks (some of which I covered here) is up about 20%, so far this year. Guinness Global Energy Guinness Global Energy (ISIN 0P0000SV1G.L), a one-stop shop, is up around 15%. Shell (SHEL.L) and BP (BP.L) are up about 10% plus each.

All this is without any dividends thrown in.

Of course, with any decent move up we are at risk of a pullback.

Let’s not forget that good investors make returns of 10 to 15% per year, every year. If we’ve made our 15% overall then should be go into cash and sit the rest of the year out, at least in this sector? Or at the very least, after a good run like this we might consider taking some risk off the table?

I have to admit, I’ve trimmed my oil and gas portfolio by about 10% and moved money into cash and invested more into Private Equity (recently CT Private Equity - CTPE.L) and mining (via Blackrock World Mining - BRWM.L).

But I’m holding on to the vast majority of my Oil and Gas exposure.

I want to make a couple of points though.

Firstly, since starting to cover Oil and gas here with Dominic, the performance of the smaller UK players has been dire. Partly that’s because they are often heavily into gas, partly they are just too small, partly they have made management mistakes, partly the clueless UK government has destroyed shareholder value with punitive taxes in the North Sea, and partly the UK market is just a dire place to invest.

But the likes of Kistos (KIST.L), Serica (SQZ.L), Diversified (DEC.L), Harbour Energy (HBR.L), I3E (I3E.L), and Enquest (ENQ.L) are all suffering.

A basket of these six shares bought in equal amounts on 1st January 2022 (which was before the big run-up at the time of the Ukraine invasion) would have fallen by around a quarter by my reckoning, including dividends (which admittedly in the case of Diversified have been hefty, cushioning a big fall in the share price). As I said in September ‘22 “I confess I have KIST, DEC and SQZ in my portfolio, but this is only a fraction of my overall exposure and KIST and SQZ have rocketed massively recently, always a warning sign”. I’m lucky I stuck to mostly avoiding the smaller, risky end of the market. But I have lost money there, it has to be said. And once bitten, twice shy.

As Dominic recently pointed out, since the start of 2022 the iShares Oil & Gas Exploration & Production ETF (SPOG.L) has risen by about 75%, and by several hundred percent since 2020, when Dominic was writing about it in Moneyweek. It has been a great call.

Much of that gain happened early on, and we’ve only just got back to approaching the peak of late 2022. This shows the importance of staying in good, diversified stories for the long term.

I’m going to say it now: For the above reasons: I think the UK Oil and Gas market, save the majors like BP and Shell, is, to the general investor, uninvestable.