Oil and Gas Eye Q2 2014

AIM fallers

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Fallers in Q2 suffered disappointing drilling results

45% of AIM oil and gas companies registered a fall in share price in Q2, reflecting disappointing exploratory drilling results and the need to preserve cash as they search for funding partners.

Tower Resources’ share price fell 79%. In June, it announced that the Welwitschia-1A well offshore Namibia had not found hydrocarbons and will be plugged and abandoned. Drilling had been behind schedule owing to late rig-delivery and operational issues. Current expectations from the operator are that costs will now be around 10% over budget. Tower has a 30% working interest in the licence. The partners have agreed not to drill further and will wait for a full analysis of the current well and its implications for the block.

Joined by Circle Oil, Tower Resources was one of two companies to exit the Oil and Gas Eye index at the end of Q2.

In May, Magnolia Petroleum said it has commissioned a detailed reserves report, including the company's 2P and 3P reserves, which the directors expect will show a reduction on 2013 figures due to a downgrade throughout the industry in net reserves assigned to the Mississippi Lime formation, Oklahoma. Magnolia said this is down to an improved understanding of the geology of the play among operators. Its share price fell 48% over Q2.

In June, Petro Matad said that, although several companies have shown an interest in farming-in to its licence area in Mongolia, no agreements have been reached. It added that finalising a farm-out agreement could take some time, and as a result it has agreed a number of measures to preserve cash resources and maximise funds for operational and farm-out activities. Its Non-Executive Directors will forgo their usual fees for six months and receive conditional share awards in lieu. Petro Matad’s share price ended Q2 down 42%.

In May, Fastnet Oil & Gas said the FA-1 well in the Foum Assaka block offshore Morocco would be plugged and abandoned after failing to find commercial hydrocarbons. This was the first exploration well in the Foum Assaka licence area, in which Fastnet holds a 9.375% interest. Fastnet’s share price fell 42% over the quarter.

San Leon Energy’s share price fell 41%. In April, it said it had decided not to proceed with the acquisition of 75% of Alpay Enerji in Turkey, originally announced in September 2013. It said it had decided its capital will be better spent in Poland, where its Lewino-1G2 well shows great promise for shale gas production in the northern Baltic Basin, adding that, following a new round of successful deals in Poland, it was on the verge of production and cash flow in its core operating area.

Performance of the Oil and Gas Eye index and FTSE 350 Oil & Gas Producers index since 2008

EY - Performance of Oil and Gas Eye index and FTSE 350 Oil and Gas Producers index since 2008

Source: EY, Thomson Datastream