Sell-off in oil stocks overdone

SOUTH Australia’s new breed of oil producers have been among the hardest hit in the share market slump of the past two months.

Fast-growing companies Beach Petroleum and Stuart Petroleum had lost more than one-third of value by last week, despite near record highs in the oil price.

Market watchers say the heavy falls have been caused by swinging sentiment, and they still see a solid outlook for the companies.

Stuart reached a record high of $2 on April 27 and last week fell to $1.16 – down 42 per cent from its high – before clawing back some lost ground late in the week.

Beach also regained ground after dropping from $1.70 on May 5 to $1.03 last Wednesday. On Friday it closed 8.5c higher at $1.29.

Petroleum majors Woodside and Santos dropped 20 per cent and 14 per cent respectively between late April and last Wednesday.

Macquarie Financial Services division director Paul Kirchner said the smaller companies were always hit harder in a downturn.

“They can give you better gains on the way up, but they also get affected more in the sell-down,” Mr Kirchner said.

This was due to a greater amount of trading in smaller stocks by speculators and day traders and not long-term investors, he said.

“The oil price is still hovering around $US70 a barrel. It has come off the top but it hasn’t fallen out of bed,” he said. Beach and Stuart were “good little companies”.

“I think there still might be some volatility in this marketplace, but that will provide an opportunity for long-term investors to buy these stocks at good prices.”

Adviser Adelaide Equity Partners believes the oil stock sell-off was overdone.

Adelaide Equity Partners executive director Duncan Gordon said the market backlash had been “unreasonably severe”.

“Some of the more savage downturns in these shares have been driven by market sentiment, not by the lack of a viable production portfolio of assets,” Mr Gordon said.

“Market vagaries to one side, we think the fundamentals driving these producers are extremely good.”

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