Socially responsible investors should buy into oil and gas companies, despite their undeservedly poor reputation, according to Neil Veitch (pictured), co-manager of the five-crown rated SVM All Europe SRI fund. 

He explains that contrary to popular belief the large companies in the sector score very highly in terms of socially responsible behaviour, as they have the resources to invest in personnel and systems to prove to the world their credentials. 
 
However, he believes it is better both from a financial and an SRI point of view to pick the smaller firms.

“The question is where we can have more effect with our SRI dollar, and we think that we can have more influence over the smaller companies in terms of persuading them to our way of thinking about environmental and socially responsible issues.” 

Here are five companies he currently rates:


Salamander Energy

“Salamander has had a chequered history. It was initially focused on aggressive exploration. Its main assets are in Asia - Thailand and Indonesia in particular. It was focussed on high intensity exploration and spent a lot of money on that, but the chances of success with that kind of strategy are low, and the company was less successful than it would have wished.”

“In the past few years it has shifted to more incremental strategy of building on their current asset base, exploring adjacent areas for example.”

“They are about to enter an exploration period and we think it has significant opportunities to make that a success.”

This stock is the biggest holding in the fund, at 4.3 per cent, and Veitch says that it proves the high conviction nature of his portfolio that he has such a large amount in a mid-cap oil stock.

Data from FE Analytics shows the company is trading at a low price compared to its history.

Performance of stock over 3yrs

 
Source: FE Analytics

 “It is a good example of a company whose reporting shows that it has invested significantly in an SRI agenda, and in increasing the transparency of its reporting,” Veitch said.


Ophir Energy

“We generally prefer a combination of production and exploration in our companies, but Ophir is an exception,” Veitch said.

“Most of the big companies have been reducing their exploration activities, but Ophir hasn’t, and it now has some of the prime property in East and West Africa from an exploration point of view.”

Performance of stock over 3yrs

 
Source: FE Analytics

Data from FE Analytics shows that awareness of the company’s oil fields off the African coast have led it to become favoured by investors in recent months.


Premier Oil

“This is more of a development story than an exploration one. They plan to double production by 2015,” Veitch said. “BP and Shell have struggled to grow production and will do so only by one or two per cent in the coming years.” 

“We think shares are way too cheap at their current valuation.”

SVM All Europe has 2 per cent in the company, according to data from FE Analytics.


Valiant Petroleum

“It’s developed assets have performed quite well and the company is holding a strategic view which we think will unlock further value for shareholders.”

SVM All Europe has 1.7 per cent of its holdings in Valiant, and another 1.7 per cent in Tullow Oil.


Tullow Oil

“We don’t currently hold this company, although we are meeting with it in the near future and have been holding it off and on for 10 years,” Veitch said.

Performance of stock over 10yrs

 
Source: FE Analytics  

“A decade ago they were where Salamander is in terms of size, but they have grown significantly. They are very open to engagement with stockholders and publish a great deal of information on their environmental performance and engage strongly in community projects in Africa.”