Oil and Gas Eye Q4 2013 in review

The index dips as investor confidence falters

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The Oil and Gas Eye index fell 3% in Q4, and has failed to deliver two consecutive quarters of growth since 2009.

The signs of increased investor confidence implied by Q3’s near 10% increase proved transient. The market remains challenging for many junior oil companies, and the index ended 2013 6% lower that at the start of the year.

The wider rally in global equity markets in 2013’s final months suggests the index’s disappointing performance was probably not down to global macro-economic factors, but more a reflection of individual company drilling and operational performance.

Junior oil and gas companies under performed their larger peers and the wider AIM market. The FTSE 350 Oil & Gas Producers’ index and AIM All-share index both increased 8% in Q4.

Companies that are able to deliver, and also communicate, exploration and commercial success will face fewer challenges in raising capital. The £212.0 million raised by AIM-listed oil and gas companies this quarter was the largest total in a single quarter for two years. However, half of that was raised by just three companies, with over 80% of companies failing to raise any funds.

There continues to be a clear variance in capital availability, and companies need to be increasingly flexible and innovative when looking at funding options.

Capital imbalances produced consolidation as better capitalized players looked for merger and acquisition opportunities. There was a net decrease in the number of oil and gas companies listed on AIM in 2013.

Q4 saw another junior oil and gas company become the target of a takeover approach when Coastal Energy’s shareholders voted to approve its acquisition by a unit of Spanish company CEPSA.

No new oil and gas companies joined AIM in Q4. However, those with near-term production potential, positions in potentially high impact exploration plays and balanced risk portfolios will continue to attract investors, and we are likely to see some new oil and gas companies joining AIM in the coming months.

Market and economic stability will be the main factors affecting investor confidence in the coming year, and if these improve, the index may see two consecutive quarters of growth before the end of the year.

 


Performance of the Oil and Gas Eye index over Q4 2013

EY - Performance of the Oil and Gas Eye index over Q4 2013

Source: EY, Thomson Datastream


Performance of the Oil and Gas Eye index and oil price over Q4 2013

EY - Performance of the Oil and Gas Eye index and oil price over Q4 2013

Source: EY, Thomson Datastream


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

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

Source: EY analysis of AIM market statistics