The under-performance of oil&gas against the broader market could be blamed on a number of things, including the uncertainty over the future of BG Group’s Queensland Curtis coal-to-LNG project from the proposed resource super-profits tax in Australia (the project was subsequently made exempt from the tax after a rethink) and the change of UK prime minister in July.
There was also some disappointment for Tullow Oil shareholders as an argument over tax with the Ugandan government delayed the sale of Heritage Oil-related assets to Tullow. An agreement was subsequently reached on July 6.
The 14% fall in the oil price also hurt sentiment, although there was a good recovery in the US gas price following better than expected Q1 GDP growth.
However, there was only one real story in the oil sector from April 20 onwards: the Deepwater Horizon disaster.
This was the story that dominated the headlines, and its implications for the whole of the oil industry, especially BP, is the principal reason why the sector performed so poorly during the quarter.
With much of the mainstream media seemingly in tent on blaming the industry for all of the world’s problems not brought about by bankers, including now the early release of convicted terrorists, it’s easy to lose sight of positive news for investors.
News that Dana has received a possible takeover approach from Korea National Oil Corporation (KNOC) has seen its shares jump up from around £11 to nearly £15, while the tie-up between Acergy and Subsea 7 again looks positive for both sets of shareholders.
Could the second half of the year herald a wave of further corporate activity within the sector and, if so, who might the candidates be?
Setting aside chatter that BP itself could be bought over – a partial sale of assets looks far more likely than an outright sale – then a case could be made for any number of companies where the market valuation represents a significant discount to the trade value of the underlying assets of the business.
Were it not for the potential impact of restrictions on deep-sea drilling now facing the industry, perennial takeover target BG Group, for example, would surely be a candidate based on its current discount to NAV (net asset value).
The interesting one could be Tullow Oil, with Exxon Mobil a potential buyer following its earlier purchase of Kosmos Energy’s 23.49% stake in the giant Jubilee field off the coast of Ghana.
Tullow retains a 34.7% stake in the field. Conspiracy theorists will note that Anadarko also has a stake in the field that might be up for sale should the company ultimately become liable for its share of costs in the Gulf of Mexico, with the company having a 25% working interest in BP’s Macondo prospect.
Cairn Energy could prove to be the wildcard and might still be of interest to Royal Dutch Shell, especially if its £800million Greenland programme starts to become interesting.
The deal would also allow Shell to re-acquire the Rajasthan interests it sold to Cairn for $7.5million in 1996 after drawing a blank with its own exploration programme. Any deal now would be considerably more costly given the huge success that Cairn has had with that same acreage.
Mark McCue is a divisional director at investment management and financial planning specialist 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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