The past year has been a rollercoaster ride for oil and gas investors to say the least, with volatility being the theme which dominated the headlines. That said, we look forward with cautious optimism towards what 2012 may bring.
Share prices across the board have been hit as stockmarket conditions worsened with issues in the Eurozone being a key driver throughout 2011. Financing also became a real issue with banks and sovereign wealth funds tightening up on credit lines.
Take for example EnCore Oil. At the beginning of February last year the shares were trading around 140p with the business looking forward with optimism at key developments such as Catcher and Cladhan.
By August, the market had turned, with the share price trading as low as 40p as concerns over funding began to worry investors.
Seeing an attractive opportunity to acquire some significant North Sea assets Premier Oil tabled a $340million deal in October, offering 70p a share or 0.2067 of a Premier share for every Encore Oil share.
This deal, which represented an approximate 50% premium, underscores how attractive oil and gas opportunities can be . . . a theme we expect to continue in 2012 and beyond as mid and large cap oil and gas businesses with cash to spend seek to build value for their shareholders.
Premier is testament to the type of business which is likely to continue to see strong growth in the coming years. Following successful acquisition of the assets of Oilexco back in 2009, this mid-ranker is in the unusual position of having around $1.5billion in corporate tax allowances, with the EnCore deal representing Premier’s forth acquisition in 2011 alone, with further acquisitions not being ruled out.
Meanwhile, EnQuest has also been active, initially buying a 20% stake in the Kraken Oil Discovery for up to $90million after it agreed to buy two companies from Canamens Ltd. Late last month, cash-rich EnQuest announced that a further 25% of Kraken was being picked up, this time from operator Nautical in a deal worth up to $240million.
Staying in the small-cap space, 2012 has seen further exciting action. Cove Energy, whose main operations are in Mozambique put itself up for sale, noting that given the substantial size of the Mozambique site as a proportion of the company’s asset value it makes more sense to sell the entire business rather than sell of stakes in its LNG (liquefied natural gas) project.
Gulf Keystone have also seen its share price rally hard on continued speculation that US supermajor ExxonMobil may be interested in acquiring the business for 800p a share, or becoming involved in its oil field development in the Kurdistan region of Iraq. That said, the premium’s being mooted in the market seem somewhat ambitious, despite the quality of the Gulf Keystone assets.
We would question whether an organisation like Exxon would be willing to pay such a full price in this market, despite their cash pile.
And Ithaca, operator of the Athena field in the UK North Sea has also disclosed that it is in discussions with a potential suitor.
Such deal activity is likely to be a continuing theme throughout 2012 as a reduction in risk appetite in the stockmarket creates value opportunities for larger companies.
Players such as Afren and Ophir Energy, both listed on the larger London Stock Exchange (LSE) rather than the Alternative Investment Market (AIM), and who have operations in Mozambique and Tanzania have also seen their share prices rally of late on vague bid hopes, with many sector analysts pointing to increased corporate activity in 2012.
Given the economic headwinds 2012 is likely to be much the same as 2011, continued volatility in stockmarkets with political rhetoric driving markets.
Such volatility provides opportunities for those cash-rich acquisitive companies that can take advantage of short term market conditions to aggressively grow their businesses. In our view, this can only be good for Aberdeen and the north-east, with North Sea activity likely to remain buoyant for the foreseeable future.
Alan MacPhee is investment manager at Brewin Dolphin in Aberdeen
Past performance is not a guide to future performance. The value of investments can fall and you may get back less than you invested.
No investment is suitable in all cases and if you have any doubts as to an investment’s suitability then you should contact us.
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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