Investment funds go for shale despite warnings about debt and spending

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Source: DollarPhotoClub

The jury is still out when it comes to the profitability of many shale gas and oil companies, but this doesn’t seem to deter investment funds eager to profit from the ‘shale revolution’.

Last month, a fund targeting investment opportunities arising from shale gas in the US was announced by Goldman Sachs Asset Management. In Poland, a similar fund – ALLIANZ SHALE FIZ – has been operating since 2013 and has so far shown 16 per cent profit since its inception and 5 per cent since the beginning of 2014

ALLIANZ SHALE FIZ is a Polish closed-end fund with portfolio comprising 20-40 companies from the shale gas and oil industry.

The fund invests in promising American exploration and production companies in the shale energy sector.
“One of our best investments turned out to be the purchase of shares of Carrizo Oil & Gas, which explores shale gas and oil in Texas, Ohio, Colorado, and Pennsylvania. Over the last year the value of the company increased by 100 per cent”, the fund’s manager Grzegorz Prazmo explained.

With the U.S. Energy Information Administration predicting the exploration of shale gas to increase by 2.5 per cent on the previous year, the fund’s managers believe that natural gas is still a good investment. “Since the price-dip of 2012, gas prices have risen by 120 per cent” Mr Prazmo said. “This will have a positive influence on the financial results of the companies in this industry.”

The recently launched Goldman Sachs North American Shale Revolution & Energy Infrastructure Portfolio, on the other hand, will invest primarily in master limited partnerships (MLPs). These are publicly traded US corporate structures that receive favourable tax treatment, focused on the midstream energy industry.

Goldman Sachs believes that midstream companies offer “lower commodity price risk than energy producers and users, and can also offer what we believe are attractive attributes: income and growth potential, interest rate and inflation resiliency, and low correlations to traditional asset classes”.

Institutional investors’ increased interest towards shale comes amid warnings and speculations about the profitability of many shale exploration companies, with concerns about spending and mounting debt exacerbated by still low gas prices and LNG exports jeopardised by the recent Russia-China gas deal.

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