Despite all the economic doom and gloom of 12 months ago, and ongoing turmoil in much of Europe, investors may be surprised to find that they have made money in 2010.
Equities have done well with many markets delivering returns in line with long-term averages. Commodities have also generally risen, benefiting from the recovering global economy. Oil itself is near its high for the year at $90 a barrel.
Even those more concerned with deflation have made money, with 10-year US Treasuries up by around 6.4% and UK Gilts by 8%. Gold has continued to soar.
In fact, it’s been a year when you had to get out of bed very early to lose money.
Against this background, the FTSE Oil & Gas Producers Index has enjoyed a quieter year, returning just 3.8%, including dividend. Scratch beyond the surface, however, and returns get much more exciting.
With BP still accounting for around 30% of that index, returns elsewhere have comfortably exceeded broader market averages.
It’s a similar story for investors who have looked beyond the producers to the contracting community, with the likes of Amec (+47.5%), Petrofac (+61.8%) and Wood Group (+79.1%) all earning stellar returns for shareholders on the back of very strong trading.
Exploration efforts in the North Falklands Basin gripped the attention of many speculators in 2010. Rockhopper Exploration soared on the Sea Lion discovery.
Having started the year at 61.5p, RKH’s shares have risen by more than fivefold to around the 325p level. However, contrast this with the losses experienced by fellow Falklands explorer Desire Petroleum, where limited success from its own ongoing drilling campaign has seen the share price skid lower to around 66p, having started the year at 89p and briefly reaching 167p on hopes of a commercial discovery.
Heavy oil is becoming increasingly important for the North Sea, with the successful flow test of Xcite Energy’s 9/3b-6z well in the Bentley field proving the commerciality of the reservoir. This is a transformational event for the company and also bodes well for further heavy oil stocks such as Nautical Petroleum.
Both stocks have been star performers over the past 12 months, and look set to do well again in 2011, although whether either can repeat returns of 578% or 758% respectively for shareholders must be questionable.
Elsewhere, it’s also been a tricky year for the many looking to invest into renewables, with SeaEnergy (formerly Ramco Energy) failing to deliver on the wave of investor optimism that saw the firm’s shares hit 71p early in the year. Although the shares have slumped to 22p, it’s far too soon to give up, at least on the sector.
For all of the positive returns earned by investors, 2010 will be remembered for the Macondo disaster. The potential for loss of life, environmental damage and financial loss was brought into sharp focus by the accident. It’s testament to the financial strength of BP that the company has survived an event that would have brought down virtually anyone else in the industry.
Initial fears that deepwater drilling would suffer a downturn in the wake of the disaster proved misplaced. Deepwater drilling and the service companies that make it possible all recovered quickly in the second half of the year, driving share prices higher. With hindsight, Hunting’s purchase of Innova-Extel for $125million (£80million) was one of the deals of the year.
The US government’s report into Macondo is expected to lead to tighter safety regulations, equipment specification and drilling procedures across the offshore industry. While this will lead to greater production costs for operators, it should provide a boon for those service companies ultimately contracted to do the work.
This could prove to be the lasting legacy of 2010.
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Mark McCue is a divisional director at investment management and financial planning specialists Brewin Dolphin.
Past performance of shares is not a guide to future performance. The opinions expressed in this article are not necessarily the views held throughout Brewin Dolphin Ltd. No Director, representative or employee of Brewin Dolphin Ltd accepts liability for any direct or consequential loss arising from the use of this document or its contents.
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