One month ago, a fellow contributor wrote about Platinum Asset Management Limited’s (ASX: PTM) purchase of shares in Japanese oil producer Inpex. Now, another prominent Australian investor, Allan Gray, has reportedly bought a chunk of two of Australia’s biggest oil and gas producers.

Allan Gray is a contrarian investment house that has outperformed the ASX 300 over the past decade, and its latest purchases suggest there’s value in the sector. Analyst Suhar Nayak was quoted by Fairfax media as stating that producers with low cost and long life assets will do well.

Presumably this is true of all commodity producers, but Nayak’s point was that companies with shorter term lifespans risk losing the bulk of their asset’s lifespan during times of low prices, which can last for several years.

Allan Gray bought a chunk of Woodside Petroleum Limited (ASX: WPL) and Origin Energy Ltd (ASX: ORG) as they see value in the sector, with share price movements in Australian dollars not matching the recent rise in US-dollar oil prices.

Woodside Petroleum looks like the best value from the big producers as its better balance sheet and strong cash-flows make it a more secure investment. While Origin, Woodside and Santos Ltd (ASX: STO) each trade around 8 times last year’s operating cash flows (10 times for Origin), Santos and Origin are hamstrung by massive debt while Woodside is able to reinvest most of its cash in the business.

Some analysts have voiced concerns about Woodside’s lack of growth options and aversion to big acquisitions. Since Woodside’s failed tilt at Oil Search Limited (ASX: OSH), management has stated that they are looking at smaller acquisitions, under the $1 billion mark. These are likely to deliver a better return to shareholders over time, and as long as Woodside retains its balance sheet strength it has the flexibility to acquire stressed assets as they come up for sale.

While the sector as a whole looks attractive to Allan Gray, investors need to remember that taking a contrarian approach isn’t suited for those who can’t handle volatility, as share prices could well go up, down, or sideways from here.

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Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.