Oil and Gas Eye
The green shoots of optimism fail to take root
- Q3’s signs of increased investor confidence did not carry forward into Q4, and the Oil and Gas Eye index fell 3%. Market conditions remained challenging for most junior oil and gas companies through 2013, and the index ended the year down 6% on the start.
- The disappointing performance came amid a wider rally in global equity markets. Junior oil and gas companies underperformed their larger peers and the broader AIM market. The FTSE 350 Oil & Gas Producers’ index and AIM All-share index both increased 8% in Q4 and posted robust gains over the year.
- More positively, secondary fund raising rebounded strongly at the end of the year, with the £212.0 million raised by oil and gas companies the largest total in a single quarter for two years. Half of that related to just three companies though, highlighting a continued divergence in capital availability.
- Over 80% of companies failed to raise any funds in Q4. Capital constrained companies are forced to be more innovative as they assess all the available funding options. In addition to conventional project finance, they are engaging in farm-out transactions, oil and gas prepayment deals, and loan arrangements with service providers.
- Capital imbalances contributed to a net decrease in the size of the AIM oil and gas universe over 2013. No new oil and gas companies joined AIM in Q4. The IPO pipeline is healthy, but needs market and economic stability to bolster investor confidence.