Are fossil fuels a bad investment?

It’s hard to miss the carnage in oil stocks at the moment. I’m sure many, like me, are tempted to load up on them as oil reaches lows not seen since 2009. Surely this must be overdone, oil at $60 a barrel will not be sustained? Well that may be true, but the question I’m interested in is are fossil fuels going to prove to be a sensible investment long term?

‘Unburnable Carbon’ is a report by the Carbon Tracker Initiative. It raises an important issue at the moment, and that is if all the world’s fossil fuel companies extract and use all their proven reserves, the emissions will total 5 times the currently agreed limit by all major governments. There is a complete disconnect between the targets agreed by governments, and how the market is valuing fossil fuel reserves far in excess of those targets. In effect the market assumes the targets will be completely ignored.

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Awilco Drilling (OSL:AWDR)

A recent buy in my portfolio is Awilco Drilling (OSL:AWDR), which owns and contracts out two drill rigs. It has a dividend yield of 20% and a stable stream of income under contracts for the next few years. But the dividend has only just started to be paid quarterly, so it does not appear in a lot of screeners which is why it has gone unnoticed.

The oil industry is priced low all-round at the moment, so there are bargains around and I feel this is one of them. Read the piece I linked in my last post for more info on why the oil market is undervalued.

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