Oil and Gas Eye Q1 2013 in review

Q1 saw limited movement in the index. Against a backdrop of strong global equity market gains, it rose 1%, compared with a 7% fall in Q4 2012.

Similar to the global economy, it has been two steps forward and one step back, and the index hasn’t seen more than two consecutive growth quarters since 2009.

• Junior oil and gas companies underperformed their larger peers
• The FTSE 350 Oil and Gas Producers Index rose 4%
• Oil and gas companies also underperformed those in other sectors on AIM
• The FTSE AIM All-Share index increased 3%
• Investor risk appetite is returning, but selectively. Secondary fundraising by AIM oil and gas companies recovered, with the £173.9 million raised 48% higher than Q4 2012’s total.

Performance of the Oil and Gas Eye index since 2008

Performance of the Oil and Gas Eye index over Q1 2013

Source: Ernst & Young, Thomson Datastream

However, equity market gains have moved ahead of general confidence in the global economy. Fluctuating economic indicators are eroding some of the investor confidence we saw earlier this year, and most oil and gas companies listed on AIM did not raise any funds in Q1.

Consolidation in the junior oil and gas sector continues, with the proposed acquisition of Valiant Petroleum by Ithaca Energy and strategic alternatives publicly under consideration by Lochard Energy and Independent Resources, including the sale of the company.

For now relatively strong commodity prices are supporting investment. Brent crude averaged US$112.50 per barrel in the first three months of 2013, 2% higher than Q4 2012’s average, but 5% lower than Q1 2012’s.

Uncertainty over future oil demand and some strong non-OPEC supply growth is lowering prices. In the absence of any supply or geo-political shocks, they are likely to continue to rise and fall as new economic data is released.

Investor and business confidence should improve over the year as economic growth continues.

Financial market gains will increasingly encourage IPOs. This year there have already been two oil and gas IPOs on AIM, and the outlook suggests an increased appetite for IPO activity.

Oil & Gas funds raised as a proportion of total funds raised on AIM

Source: Ernst & Young analysis of AIM market