Despite the ongoing operating challenges for oil & gas companies in today’s global economic markets, the sector remains active and continues to provide opportunities for investors.
Many organisations are currently thinking about the future of global capital markets, and upstream petroleum is no exception.
In lean times, funding is hard to come by, as evidenced in our latest IPO (initial public offering) statistics, which showed that the total number of oil&gas companies going public in 2007 fell by 6%, down from 90 listings in 2006 to 85 in 2007.
The total value of oil&gas IPOs also dropped in 2007 by 50%, to $12.4billion, although this was partly due to the absence of larger emerging market deals.
However, this rather dull picture hides one shining star, the London market and, in particular, its junior exchange, AIM. The London market continued to dominate oil&gas IPOs last year, with inbound IPOs up 15% in 2007, compared with 2006.
London’s junior AIM market was the success story of 2007, with 14% of all oil&gas companies listing on the exchange, compared with 11% in 2006.
Inbound AIM oil&gas IPOs also increased in 2007, accounting for 75% of all UK listings by the sector in 2007, compared with 60% in 2006.
However, the overall value of deals on AIM was down to $578.7million in 2007, from $724.6million in 2006.
Globally, London remains the centre for upstream petroleum fundraising. Its bourses continue to attract a significantly high number of inbound IPOs from the sector.
No other exchange compares. This can be attributed to the more favourable regulatory environment in London and a capital market that understands and has enthusiasm for the sector.
All other major exchanges for the oil&gas sector, from New York and Toronto to Australia and Norway, continue to be dominated by domestic listings.
However, investors remain cautious and discerning about where they invest their pounds, dollars and euros, which is evident in the decline in the total value of oil&gas listings across all of the major exchanges for the sector.
As the number of such listed companies increases, especially at the junior end of the market, investors are becoming more selective in where they place their petroleum investment monies. Only the best new opportunities are attracting market interest.
In Australia, there was a total of 15 oil&gas IPOs in 2007, the same number as 2006, but total value was down to $180million in 2007 from $269million in 2006.
The Canadian stock exchanges saw a 35% decline in the total number of oil&gas listings, from 20 in 2006 to just 13 in 2007, with total values dropping to $406million, from $832million in 2006.
IPOs in the sector on the US stock exchanges only fell marginally, with 19 deals taking place in 2007, compared with 21 in 2006. Total deal value also held up well, with $4.6billion raised in 2007 compared with $5billion in 2006.
The Australian and US exchanges attracted only one inbound IPO each from the sector in 2007, and Canada attracted two.
London felt the loss of the larger deals of 2006, as AIM propped up the market. Although the total number of transactions remained stable (14 in both 2007 and 2006), as a consequence of London’s reliance on the junior market to keep deal activity steady, values plummeted from $14.3billion in 2006 to just $2.1billion in 2007. But this was because Rosneft’s London listing in 2006 raised $10.7billion.
The Chinese have been making a subtle entry on to the world exchanges. There was a total of four listings in 2007, up from just one in 2006. Three out of four of the Chinese oil&gas company listings were on foreign exchanges – one in New York and two in Singapore.
The four listings raised a total of $389million in 2007, compared with the $33.4million listing of Ouhua Energy Holdings Ltd on the Singapore stock exchange in 2006.
In summary, London remains the centre for oil&gas companies looking to IPO. In AIM, its pre-eminent position as the exchange of choice for smaller oil&gas companies shows no signs of being eroded by other global bourses.
Once listed, these companies are increasingly finding themselves the focus of attention to predators, such as ENI’s recent acquisition of Burren. It is worth noting that this interest has soared over the last nine months, particularly from reserve-hungry companies, including many of the Asian state-owned enterprises.
With the current global economic slowdown, the challenge will be for the London market to maintain its marketing-leading position – watch this space.
Alec Carstairs is office managing partner, Ernst & Young, Aberdeen