Confidence and rising crude prices boost oil and gas growth

Published on Sunday 22 November 2009 21:03

OIL and gas companies listed on London's Alternative Investment Market (Aim) have enjoyed their third consecutive quarter of growth thanks to rising crude prices and renewed investor confidence.

According to Ernst & Young's latest Oil and Gas Eye report, the index of 109 energy firms on Aim rose by 35 per cent in the third quarter of 2009. Two-thirds of the companies posted share price gains during the period.

The continued rise means that the oil and gas index has surged 114 per cent since the start of the year.

In a further boost to the sector, experts at E&Y said interest levels in initial public offerings and fund raisings were "higher than they have been for some time".

The accountancy firm pointed to a "pipeline of candidates actively preparing". It follows a dearth of industry activity on Aim, with no new oil and gas listings in more than a year.

Alec Carstairs, an Aberdeen-based oil and gas partner at E&Y, said: "Oil company stocks have benefited from the cautious recovery in investor confidence and higher oil prices.

"Secondary fundraising in the oil and gas sector totalled 333.3 million in the third quarter.

"This was the highest amount raised by Aim-listed oil and gas companies in a single quarter since the second quarter of 2006."

Of the 39 firms that managed to raise additional cash during the third quarter, the majority were seeking funds to push forward with the development of key assets and to bring forward revenues, Carstairs added.

The report noted that a "significant" proportion of corporate activity in the oil and gas upstream market this year had involved independent companies, as both buyers and sellers.

For many sellers, these transactions have been "a defensive move born out of financial necessity", E&Y said.

Despite the revival in investor confidence, the firm said "cash-rich players" were likely to proceed "with some caution".

Jon Clark, director of E&Y's oil and gas practice, said: "Transactions in the short-term are likely to include joint ventures involving small to medium-sized corporates and alliances of a strategic or tactical nature.

"We do not expect to see a return to the record deal volumes and values of 2006-07 and the first half of 2008.

"Meanwhile, the carve-outs that followed the mega-mergers of the 1990s will continue as larger companies sell non-strategic business."

He said financing was still available "for the stronger oil and gas players to make things happen".

Scottish oil and gas companies listed on Aim include Bowleven and Faroe Petroleum. E&Y's Eye index stood at 1,478 at the end of September, well down on a series-high of 2,582 set in May 2006.