Oil and Gas Eye Q2 2014 in review

The index dips as investor confidence falters

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Oil and Gas Eye rises slightly, reflecting tough but improving market conditions

EY’s Oil and Gas Eye rose 3% in Q2, a welcome sign after two consecutive quarters of decline.

Junior oil and gas companies outperformed the wider AIM market for the first time in two years, with the AIM All-share index declining nearly 8%.

However, the index’s performance remains volatile, and junior oil and gas companies under performed their larger peers. The FTSE 350 Oil & Gas Producers’ index gained 8% in Q2. The constituent companies received some support from a rise in oil prices following political unrest In the Middle East.

Deal making was back on the agenda of junior oil and gas companies this quarter.

They are engaging in acquisition and farm-out activity to diversify exploration risk and secure funding for development opportunities by buying producing assets. Proposed deals include the acquisition of Mediterranean Oil & Gas by fellow AIM-listed company Rockhopper Exploration. The transaction will add production to Rockhopper’s portfolio and diversify the Falkland Island focused company’s exploration and development opportunities.

Consolidation is also taking place in the UK’s fledgling shale gas industry.

Although so far only around five wells have been drilled, a recent study commissioned by the UK Onshore Operators Group (UKOOG) and prepared by EY, Getting ready for UK Shale Gas, estimates that the development of shale gas in the UK could give British business a £33 billion investment opportunity.

UK onshore operators are engaging in M&A activity to build scale and secure early-mover advantage.

In May, IGas said it had agreed to buy Australian junior, Dart Energy, in a recommended deal valued at around £117.1 million. The combination of IGas and Dart will create a leading onshore oil and gas company with the largest area in the UK under licence.

Egdon Resources has announced the proposed acquisition of the onshore shale gas business and assets of Alkane Energy. The deal will almost double Egdon’s prospective shale gas acreage in Northern England.

Earlier in the year, Egdon and IGas said they had entered into farm-out deals with Total, marking the entry of the first oil major into UK shale gas exploration. These deals suggest keen interest will be likely from a range of explorers in the 14th UK Onshore Licensing Round, expected later this year.

Performance of the Oil and Gas Eye index over Q2 2014

EY - Performance of the Oil and Gas Eye index over Q2 2014

Source: EY, Thomson Datastream

Performance of Oil and Gas eye index and oil price over Q2 2014

EY - Performance of Oil and Gas eye index and oil price over Q2 2014

Source: EY, Thomson Datastream

Oil and 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