EY - Oil and Gas Eye Q2 2014

Oil and Gas Eye

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A small step forward for junior oil and gas companies, but conditions remain tough for many

  • With market conditions still tough but slowly improving, EY’s Oil and Gas Eye index rose 3% in Q2. The return to growth offers a glimmer of hope after two consecutive quarters of decline.
  • Junior oil and gas companies outperformed the wider AIM market for the first quarter in two years, as the AIM All-share index registered a near 8% decline. However, the index’s performance remains volatile, and junior oil and gas companies under performed their larger peers, with the FTSE 350 Oil and Gas Producers’ index growing 8%.
  • Secondary fund raising rebounded in Q2, with the £254.8 million raised the largest amount in a single quarter since Q4 2011. Almost half this was raised by just two companies – Faroe Petroleum and Petroceltic International. The three-quarters of companies that didn’t raise any capital are typically focusing existing capital and activities on projects they believe are best positioned to add value.
  • There were no oil and gas IPOs on AIM. There are several IPOs in the pipeline, but a number of oil and gas companies are also likely to exit AIM in Q3 following corporate takeovers.
  • Junior oil and gas companies were active deal makers in Q2, engaging in M&A activity to diversify exploration risk and secure cash flows by buying producing assets. Investors in smaller exploration companies remain cautious until production potential is confirmed. In a risk adverse investment climate, companies with a more balanced portfolio of exploration and production assets may be the winners in the battle to attract scarce capital.