SCOTLAND’S energy exploration minnows may have to resort to specialist investors for funding due to badly dented stock market valuations amid the oil price slump, a new report says.
They may also have to consider “opportunistic” takeover bids by bigger players as sentiment turns sour for smaller oil and gas companies to raise money, notes yesterday’s report from business advisory group BDO.
Aim-listed oil and gas companies found it increasingly difficultNeil McGill of BDO
The market capitalisation of explorers listed on the Alternative Investment Market (Aim) fell just under a third to £373.5 million in 2014 from £548.8m in 2013, it said.
The four Aim-quoted Scottish oil and gas operators include Bowleven, whose value fell 22 per cent, and Lansdowne Oil and Gas, down 59 per cent. Faroe Petroleum and Eland Oil & Gas also suffered substantial falls.
Neil McGill, corporate finance director at BDO, said the change in sentiment due to the oil price collapse since last summer meant “Aim-listed oil and gas companies found it increasingly difficult to raise finance, with 80 per cent of secondary (share) issues in the first half (of 2014) and only 20 per cent in the final six months”.
McGill said there was little prospect of recovery in investor sentiment short term, “so firms may need to consider alternative sources of finance from specialist investors to the sector. That could be private equity.
“With the funding market tight we (also) expect to see (sector) consolidation continue. These small players sometimes even find it hard to raise (stock market) money when times are less challenging. That has been exacerbated by the oil price fall.”
Bowleven yesterday completed the sale of major stakes in its Etinde development in Cameroon in a deal worth up to $250m (£169.4m). The buyers were Lukoil of Russia and NewAge, an explorer focused on Africa.
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