(pictured left) Roberto Cominotto, manager of the Julius Baer Energy Transition fund said the BP spill and the equity market correction, which started in early May, have hit energy stocks hard.
"Valuations have come down sharply and are now at very attractive levels," he pointed out.
Angelos Damaskos, chief executive officer at Sector Investment Managers said the impact of the BP disaster will be increased regulation of offshore drilling that will ultimately raise costs and delay production from new discoveries.
"With the assumption of higher future oil prices, oil company valuations have become more attractive, especially for those with large proven reserves and growing production forecasts," said Damaskos.
Damaskos believes that going forward this will be a benefit to funds with exposure to oil.
"Funds with investments in companies with large proven reserves and continuing development plans that will add to reserves and production will benefit as valuations rerate higher. I expect this impact to be more pronounced in the smaller to middle capitalisation names," he said.
Cominotto agreed that the sector will see an increase in regulation inevitably increasing the overall costs for deep-water oil producers; and said there were some companies that could benefit from this.
"The medium-term outlook for offshore drilling is however unlikely to change significantly due to the US's dependence on oil, and the country's desire to become less reliant on foreign oil.
"Service and equipment companies are likely to benefit as offshore rigs will require greater levels of inspection and maintenance. Old equipment may also need to be replaced to meet new safety standards," he explained.
Data from Financial Express showed there are 19 IMA UT and OEIC defined funds with exposure to the oil and gas equipment and services sector. The exposure held within these portfolios ranged from 0.90 per cent to 15.70 per cent. The performance of the five funds with the largest weightings, over a three year period, can be seen in the chart below.
Source: Financial Express Analytics
If the price of oil does increase some managers believe that the case for renewables could become more important, however Damaskos does not entirely agree with this view.
"It has always been our belief that renewables are a marginal factor in the world's energy demand. Nevertheless, assuming oil prices will stay at high levels, many of the renewable propositions become more viable and may therefore rely less on subsidies," he said.
"Given the weak global economic growth in the next few years and the large austerity programmes of developed economies governments, subsidies for renewable energy projects are likely to be under scrutiny and possible cuts."
However, Cominotto believes the excessive fears over European public deficits and solar subsidiary cuts have created attractive solar energy investment opportunities.
"Subsidy cuts are logical and to be expected as costs for renewable energy installations fall over time. Such cuts should be seen as a positive signal that renewable energy is becoming more cost competitive compared to traditional energy sources," he said.
"Estimates for expected installation volumes are rising, and we believe investors will change their overly pessimistic view of the solar industry. We also expect companies to report very strong result for the second quarter, giving investors further reason to be optimistic."