(Reuters) - A sell-off in energy equities triggered by the fall in crude oil prices and risk-averse investors hugging defensive sectors is creating some attractive bargains, said Lombard Odier fund manager Michael Hulme.

"The market seems to be anticipating a Greek exit from the euro and that has taken energy stocks down much further than seems to be justified, but we have a large number of companies on the substitutes bench that are getting to mouth-wateringly cheap levels," said Hulme, manager of the Lombard Odier Global Energy Fund.

The fund is currently about 10 percent in cash, which Hulme sees as a reserve to put to work if prices fall further.

"Exploration and production companies and oil service companies have underperformed the market quite spectacularly over the last 18 months," he on Wednesday at the Reuters Global Energy and Environment Summit in said in London.

"It's quite disappointing, but it's also a fantastic opportunity. Companies are trading on about three or four times operating cashflow and generating reasonable returns on invested capital. But we need people to look beyond their concerns about market volatility."

Energy shares have been clobbered this year by falling oil prices and investors steering clear of more growth-oriented segments due to the poor economic outlook.

"The market has been lurching headlong along the pier like a drunken sailor," said Hulme. "When things settle down the value will be apparent in the quality franchises."

He has recently added to his position in Apache (APA.N), which has been punished by the Arab Spring as it generates about 20 percent of its cashflow from Egypt.

Hulme said Apache's CEO had been there and was fairly comfortable with how things were going. At current valuations he said the Egypt factor was more than priced into the stock.

He has also added to Premier Oil (PMO.L), which he sees as well-positioned to take advantage of any downturn.

"There are an awful lot of companies out there that are struggling and Premier could easily roll them into its portfolio if it wanted to."

SECTOR SHAKE-OUT

Hulme sees a turning point coming whereby capital will be restricted to U.S. oil and gas companies that can actually generate returns on capital.

"The sector was awash with money when the great land grab for shale assets was on. Capital markets will become more circumspect and that favors stock-pickers," he said.

"I have been staggered by the way many companies that probably shouldn't be in business have been bailed out time and time again by capital markets."

The fund was down almost 11 percent in the 12 months to end-April but beat its peers in the Lipper Global Natural Resource equity sector by almost 12 percentage points.

Hulme said that in 2011 it had been hard for active energy funds to perform against sector benchmarks largely composed of companies with very large market capital that had benefited from defensive "risk-off" trade.

He prefers to focus on small and mid-caps, which have begun to make up ground this year. Hulme pointed to successes with Africa Oil (AOI.V) and Ophir (OPHR.L).

Africa Oil is a micro-cap minnow that made a significant discovery onshore Kenya whilst Ophir had a successful drilling result in the Mzia well, offshore Tanzania.

Other key holdings include Pioneer Natural Resources (PXD.N) and Anadarko (APC.N).

"Anadarko suffered because of the Macondo stigma, but now it has a very attractive onshore business and you're almost getting the offshore development and exploration business for free," Hulme said.

Like Ophir, Anadarko has been able to exploit the natural gas fields in East Africa and earlier this week announced a major find offshore Mozambique.

(Reporting by Claire Milhench; Editing by Hans-Juergen Peters)