With most of the companies under our coverage having December year-ends, Q1 was unsurprisingly dominated by full-year results.
Of course, actual results are more important for some companies than others, with the exploration updates for Tullow Oil and Cairn Energy being more important than for the likes of BP or Royal Dutch Shell.
Even the results from the oil service companies reflected an order rate associated with a much different oil-price environment, especially those with higher exposure to upstream engineering projects, which have been particularly sensitive to the fall in oil prices since the peak in July 2008.
Overall, the sector had a fairly mixed set of results and, while oil prices made modest progress, refining margins recovered modestly from the rout seen in Q4 2009.
Gas prices on both sides of the Atlantic fell sharply and, with most of the FTSE 350 oil&gas constituents affected to a greater or lesser extent by gas prices while the more dynamic exploration and production companies had mixed performances, it is perhaps not surprising that the index underperformed the rest of the buoyant equity market.
The results season also gives an opportunity to meet with managements and gauge their feelings about the industry. It should be no surprise to learn that sentiment is much more positive than at this time last year, when oil prices were languishing between $40 and $50, perilously close to the break-even level for most new projects.
Q1 is also the time when the management of “the big three” – BG Group, BP and Royal Dutch – have their greatest interaction with investors at their annual strategy presentations, and again, the general mood was upbeat.
Petrofac was the star performer over the first quarter, with the shares outperforming the sector by more than 25%. The company, having announced to the market the spin-off of the North Sea assets into EnQuest – a joint-venture with Lundin Petroleum which will be 45% owned by Petrofac shareholders – there was a feeling that this would overshadow the excellent performance in the rest of the business.
As it turned out, shareholders had no reason to worry as, led by a very strong performance in the engineering and construction division, Petrofac easily beat its own guidance for earnings given at the trading update in December.
The new EnQuest vehicle, with its debt-free status, plus the combination of using the Thistle field infrastructure to improve the delivery of production from the Don fields in the North Sea, may appear attractive.
The initial reaction to the flotation has been positive for both shares, but we would not be surprised to now see a pause in the Petrofac shares as disposing part of the E&P assets (Petrofac still has assets in Malaysia and Kuala Lumpur) removes a key differentiator for the company.
Mark McCue is a divisional director of broker and wealth manager Brewin Dolphin in Aberdeen.
The opinions expressed in this article are not necessarily the views held throughout Brewin Dolphin Ltd, nor will any liability be accepted for any direct or consequential loss arising from use of the contents of this column
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