Stability returning to AIM oil and gas market

9 May 2013

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Fundraising increases and further IPOs expected, according to EY

Sharp rises in fundraising by junior oil and gas companies hints at returning market stability and the prospect of an increase in Initial Public Offerings (IPOs), analysts from EY believe.

According to the firm’s latest Oil and Gas Eye index, which monitors the performance of the sector’s AIM-listed businesses, secondary fundraising totalled £173.9 million during Q1 2013 – a 48% increase on the Q4 2012 total and the highest amount raised in a single quarter in more than a year.

Jon Clark oil and gas transactions partner at EY, said: “Fundraising was supported by greater stability in equity markets and a returning appetite for risk, albeit selectively. Proceeds will go towards adding value to companies’ portfolios which, in some cases, means strategic acquisitions.”

Index has suffered ‘triple dip’

The report notes that the AIM oil and gas universe comprised of 118 companies at the end of the first quarter of this year, compared to 115 at the end of last year.

According to Clark, the two successful IPOs and the two readmissions completed during the quarter suggest a number of similar moves are in the pipeline.

“Market volatility has been the norm for many junior oil and gas companies for a number of years. In fact, we haven’t witnessed two consecutive quarters of growth in the value of the index since 2009. In economic terms, our Oil and Gas Eye has already suffered a triple dip,” he said.

“Market stability is returning, though, and there is a foundation for new entrants to build upon. There are a growing number of potential IPO candidates preparing their businesses for the public market.”

Alternative financing routes may be advisable

Nonetheless, the index does highlight the continuing divergence between the haves and have-nots, with the best performing stock rising by 46% during the quarter, and the worst falling by 55%.

Clark concluded: “Improving investor and business confidence should provide a supportive backdrop for further IPOs, but it might be necessary for existing AIM oil and gas companies to seek alternative financing routes. Increased flexibility and creativity is a necessity.”