Oil and Gas Eye Q3 2013 in review
As investor confidence returns the index rises almost 10%
The index rose 9.6% over Q3, the largest quarterly gain in eighteen months.
This improvement came as positive news on economic growth in developed markets boosted investor confidence and increased appetite for perceived riskier stocks, helping the FTSE AIM All-share index rise 14%Q3.
Junior oil and gas companies outperformed their larger peers this quarter.
A firmer oil price environment failed to prevent the FTSE 350 Oil & Gas Producers’ index falling 2%.
Political tensions surrounding the Syria conflict pushed the price of Brent crude to an average of US$110.30 per barrel in Q3 – 7.5% higher than Q2’s average.
Increased IPO activity
Investors will continue to be selective about stocks they support.
As we predicted last quarter, there has been a marked shift towards IPOs.
Following successful IPOs, three new oil and gas companies joined AIM in Q3. Companies still see advantage in the broad investor base, liquidity, and access to institutional investors that a listing on AIM provides.
Two oil and gas companies also listed on the London Stock Exchange’s Main Market during Q3, and there are more IPOs being prepared, including private equity firm Riverstone’s plans for an IPO of shares in a new London-listed energy investment company.
Exchange selection is a vital strategic consideration for businesses looking to access capital markets.
Increasingly, companies are looking to access investment communities in the jurisdictions where they have interests. Jupiter Energy, which is listed on AIM and the Australian Stock Exchange, listed on the Kazakh Stock Exchange in September in order to improve access to the local investment community.
South America focused GeoPark intends to delist from AIM and list on the New York Stock Exchange.
Exploring all the funding options
Despite positive investor sentiment, the index is still 3% lower than at the start of 2013.
Investor confidence remains fragile and susceptible to market shocks. The index has not seen more than two consecutive growth quarters since 2009.
Five years from the start of the financial crisis, equity capital market conditions for most junior oil exploration companies remain difficult.
Just 10% of AIM-listed oil and gas companies successfully raised capital in Q3, but the £49.3 million total was 17% higher than Q2’s. However, just four companies accounted for almost three-quarters of this, and over half was raised in the first month of the quarter, with only £7.2 million raised in September.
Remaining companies will be compelled to explore the full range of funding options and providers.
Junior oil companies will need to refocus portfolios around core assets or near-term production projects. Others may look to deliver shareholder value through a formal sale process, increasing M&A activity.
A couple of AIM–listed oil and gas companies reportedly received takeover approaches in Q3. One confirmed deal is the agreement for Falkland Oil and Gas and Desire Petroleum to merge to create a larger company with exposure to all known hydrocarbon plays in the Falklands.
The AIM oil and gas universe is likely to welcome new entrants in the remainder of 2013, but will also probably lose several members.
Performance of the Oil and Gas Eye index since 2008
Source: EY, Thomson Datastream
Performance of the Oil and Gas Eye index over Q3 2013
Source: EY, Thomson Datastream
Oil & Gas funds raised as a proportion of total funds raised on AIM
Source: EY analysis of AIM market statistics