Junior oil and gas IPOs raise spirits during capital struggle

12 May 2014

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Two new IPOs proved to be the only real source of cheers for AIM-listed oil and gas companies during the first quarter of this year, according to EY.

The firm’s Oil and Gas Eye Index – which monitors the performance of the sector’s junior companies – fell by 15% in the three months to the end of March, its largest quarterly decline in 18 months.

But the entry of Hurricane Energy and Mosman Oil and Gas into the market buoyed a universe currently dogged by negative investor sentiment.

Jon Clark, oil and gas transactions partner at EY, said: “The resilience of the IPO market has been the one bright spot in an otherwise gloomy period for juniors.”

Investors avoiding riskier opportunities

The total funds raised by junior oil and gas companies in Q1 accounted for just 7% of the total raised across AIM, the lowest proportion since 2009.

And Clark believes many junior oil and gas companies are facing a prolonged struggle to attract capital.

He said: “Companies whose attentions are focused on a single project and those lacking in scale are going to find it tough competing against those with more stable cash flows and a more balanced portfolio of assets, doubly so when investors are keeping their distance from risker options.”

Cost reduction will also play a part in sustaining support from investors, according to Clark.

“A relentless focus on cost reduction is one of the methods junior oil and gas companies are employing as they look to preserve capital,” he said.

“Making sure reductions are consistent with the strategic direction of the business is essential in avoiding a drop in value, as is maintaining contact with investors when making significant cost cuts,” he concluded.