More consolidation in the oil and gas sector is inevitable as larger companies take advantage of the strategic opportunities presented by their junior counterparts, according to professional service firm Ernst and Young.
E&Y’s quarterly Oil and Gas Eye index, which tracks the fortunes of Alternative Investment Market-listed oil and gas companies, increased by 121% in 2009 against a backdrop of a very difficult year in the economy and capital markets.
E&Y said yesterday, however, this must be tempered by the 66% decline seen in 2008. At the end of 2009, the index stood at 76% of the level at the start of 2008.
The firm said there had been no new oil and gas issues on Aim this year, reflecting uncertainties in the capital outlook and a requirement for investors to commit additional funds to existing listed companies.
It added that the outlook for new natural resources listings in 2010 was more positive with several oil and gas companies working towards a potential initial public offering next year.
In 2009, E&Y’s index of Aim-listed oil and gas companies decreased to 101 from 118 at the end of 2008. Three companies left as a result of transactions; one company, Afren, graduated to London’s main market, and 13 delisted, often for cost-management reasons.
E&Y said that in the next 12 months, Aim-listed oil and gas company numbers were likely to continue to decrease as transaction activity continued and wider economic circumstances claimed further casualties.
E&Y oil and gas director Jon Clark said: “Junior companies with little to no producing assets will find it harder to raise sufficient funds, and may be forced to consider alternative funding options. By contrast, larger companies in the sector supported by strong oil prices and more robust balance sheets are on the lookout for opportunities to expand their asset base.”
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