Oil companies are catching the eyes of some of the UK's biggest fund managers.
Martin Walker, who runs the £1.2bn Invesco Perpetual UK Growth fund, is focusing on big oil companies for returns.
The Invesco Perpetual Growth Fund has returned 82 per cent over the past five years, compared with 62 per cent for the average fund in the IA UK All Companies sector in the same time period.
The oil companies Total, BP and Shell are the three largest investments in the fund.
Mr Walker said he is keen on the sector for two reasons.
The first is that, in his view, the biggest oil companies have done an excellent job of reducing costs, to the point where the dividend of BP is more fully covered by cashflow at oil's more recent price of $55 (£40.65) a barrell than it was at the more historic price of $100 (£73.98) a barrel.
The second reason cited by Walker for his optimism is the outlook for the US shale gas production market.
One of the reasons for the oil price decline in recent years has been the increased levels of output from the shale producers, leading to higher supply and lower prices.
Shale gas refers to natural gas that is trapped within shale formations. Shales are fine-grained sedimentary rocks that can be rich sources of petroleum and natural gas.
Mr Walker’s view is that the market’s expectations for shale gas production in future are based on the industry continuing to improve the levels of efficiency in shale gas production. The fund manager said technological advance has been part of the growth of shale, but that data now shows the productivity of shale oil wells to have slowed.
He said slowing productivity would maintain the oil price at a higher level in the coming years, and boost the investment case for the oil majors.
Simon Gergel, who runs the £688m Merchants Investment Trust, is another investor keen on the oil sector.
He said based on the current dividend yields and the ability of those companies to pay the dividend from the cash they generate means the shares are “cheap”.
Shell shares are the largest individual investment in the Merchants Trust.
Job Curtis, who runs the £1.5bn City of London Investment Trust, is confident about the prospects for the oil majors, believing the oil price is stable and the companies are managing costs well.
At present, part of the dividend paid by Shell is a scrip dividend, which means investors receive additional shares in the company to the value of the dividend, rather than receiving the cash amount.
Mr Curtis said if the company continues to progress as it is, the dividend could become all cash, and that would boost the investment case for the shares further.
Shell accounts for 4.7 per cent of the assets of the City of London Investment trust, making it the largest holding in the trust.