Oil and gas IPOs to increase as investor appetite shifts

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IPO activity in the oil and gas industry is set to increase in 2013 as investors shift their attentions from recapitalising existing ventures to supporting new businesses, according to EY.

The firm’s latest Oil and Gas Eye index – which measures the performance of the sector’s junior companies – also states that competition for capital will drive transaction activity throughout the year.

Jon Clark oil and gas transactions partner at EY, said: “Like those already listed, the growing queue of potential IPO candidates will find demand for capital exceeds supply, but demonstrating differentiation beyond the technical potential of an asset can be critical to success.”

Gain recorded as volatility abates

The index itself fell by 7% during the fourth quarter of 2012, leading to a 2% gain for the year. This compares favourably with the 22% drop recorded during 2011.

The AIM-listed companies outperformed their Main Market peers, with the value of the FTSE 350 Oil and Gas Producers’ index dipping by 12% over 2012.

Clark, added: “Industry figures can take some comfort from the full-year figure, despite the reduction in Q4. Furthermore, the drop in value was relatively smooth with the volatility experienced in previous quarters abating.”

Independents at heart of transformational discoveries

EY predicts that many of the factors that shaped the sector’s agenda in 2012 will continue well into this year. Global economic growth fell short of expectations last year, and the path ahead is ‘beset with challenges’, the report warns.

However, the firm believes that there are more upside opportunities than downside risks facing the industry in the year ahead.

“The focus on organic reserve replacement through exploration has been successful for a number of companies, with independent oil and gas companies having led the way with a series of transformational discoveries in frontier and under-explored regions,” said Clark.

Capital imbalance points to consolidation

At £467 million, the total raised from issues by AIM oil and gas companies in 2012 was the lowest annual amount in eight years and 54% lower than the 2011 figure.

“The capital imbalance created by the current environment is likely to lead to further consolidation in the sector,” Clark added.

“A number of formal sale processes involving companies in the AIM universe are due to conclude early this year. The better capitalised players will be focusing on portfolio optimisation and cost efficiency, while those on the opposite end of the capital spectrum will be looking to strike deals to survive,” he concluded.