Consolidation likely for small oil and gas firms

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Smaller oil and gas companies listed on London’s junior stock market are expected to come under the takeover spotlight as confidence within the sector takes a hit.

Releasing its latest Oil and Gas Eye Index, accountancy giant Ernst & Young (E&Y) said that a number of industry-specific issues, including the oil price and drilling performance, continued to dent investor confidence.

The index, which measures the performance of oil and gas firms listed on the Alternative Investment Market (Aim), fell by 12 per cent during the second quarter.

It represents the largest quarterly drop in a year and wipes out the marginal gains seen in the first quarter.

In contrast, the FTSE 350 Oil & Gas Producers’ Index, which tracks the financial fortunes of larger companies, and the Aim All-Share Index, registered more modest falls of 2 per cent and 
5 per cent respectively during the second quarter.

The report also notes that the rebound in secondary fundraising by junior oil and gas companies witnessed in the first few months of the year was not sustained into the second quarter.

Ally Rule, oil and gas transactions partner at E&Y in Aberdeen, said some smaller firms “will be compelled to seek out alternative funding routes, which could result in further consolidations”.