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John Dodd: five energy stocks set to power returns

John Dodd: five energy stocks set to power returns

Artemis' John Dodd has been using the recent spate of deals to shuffle around his Global Energy fund.

At the fund’s launch last year the vehicle was invested in Lundin Petroleum, a Swedish exploration company that has grown its output from 250 million oil barrels to 1.8 billion.

Dodd and his co-manager Richard Hulf have since sold out the company and recycled the proceeds into Det Norske, which has also grown its output from 300 million oil barrels to 1.5 billion.

The managers said the companies they are most excited about at the minute include Brazil oil developer OGX and the fund’s biggest holding at 5.62%, Africa Oil.

‘OGX is one of the most exciting investments I see,’ Dodd (pictured) said. 

Dodd explained that he is looking for companies making discoveries while also growing their business, and OGX falls into this camp.  The shrewd small cap investor believes these are a better bet than pure exploration companies.

The Artemis Global Energy fund has also used the recent round of merger and acquisition (M&A) activity to dip into its 10% cash holding buy Apache Corporation, TransGlobe Energy Corporation and Anadarko Petroleum Corporation.

On the other side of the coin, Dodd and Hulf have sold down bid target Cove Energy.

‘The merger and acquisition side of the sector is very strong,’ Dodd explained. ‘Det Norske could be bought by Maersk Oil, while Bowleven Oil and Gas could be bought by Tullow Oil. This theme of M&A will continue to be a major part of performance.’

Aside from listed companies, the fund can also invest up to 10% of its assets in private companies. Hulf said there are three of these companies the fund has invested in and have the potential to float this year.  These include Intelligent Energy, Vostock Energy and Hurricane Exploration.

The manager said: ‘[Intelligent Energy] is scheduled for listing later this year. The uplift from this will be two-three times. So we are very short-term IPO investors.’

The duo explained that half the fund is currently in large cap stocks, while the other is in small and medium-sized firms. Although the fund initially set out to buy companies at the lower end of the market capitalisation scale, there are certain firms such as Occidental Petroleum which have dominance in key basins around the world.

‘We’ve looked at some super majors.  The biggest issue they have is replacing their reserves – and they also have to grow,' Hulf said.   'The super-majors have under-invested, so they will find it very hard to replace production.’

Hulf said that as a result super majors like BP could look to make companies like Anadarko a target, and this would help replace production.

In terms of the gas market, Hulf explained the US has been slow to develop and allow for the exportation of liquid natural gas, which has meant prices remain low at $3 per 1,000 cubic feet.

This is in contrast with the views of Jonathan Waghorn and Mark Lacey, who believed the US natural gas sector was set to soar, partly due to BHP Billiton’s acquisition of Petrohawk Energy last year.

The Artemis pair have seen their bets on the direction of energy markets pay off, and over three months their fund has returned 12.75%, beating the FTSE AW/Oil and Gas Index, which delivered 7.79%.

Year to date, the fund is down 5.9%, however it remains ahead of the benchmark, which has fallen 9.7%.

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John Dodd
John Dodd
3/22 in Equity - Energy (Performance over 3 years) Average Total Return: 49.09%
Richard Hulf
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2/22 in Equity - Energy (Performance over 3 years) Average Total Return: 49.09%
Jonathan Waghorn
Jonathan Waghorn
14/22 in Equity - Energy (Performance over 3 years) Average Total Return: 20.16%
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Mark Lacey
15/22 in Equity - Energy (Performance over 3 years) Average Total Return: 19.45%
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