By Andrew Callus
LONDON Aug 19 (Reuters) – Takeover action is on the horizon
among smaller and weaker London-listed oil companies because
they are finding it harder to raise funds, while larger peers
are having no such difficulty, according to consultancy Ernst
Young.
Its Oil and Gas Eye Index, which monitors the sector within
London’s Alternative Investment Market (AIM), fell 12 percent in
the second quarter.
That lagged a broader AIM market down 5 percent and
the FTSE 350 Oil Gas Producers’ Index of
mainstream oil and gas stocks off by 2 percent, oil and gas
transactions partner Jon Clark noted in the index report.
Second-quarter equity fundraisings among Oil and Gas Eye
Index stocks totalled 42.1 million pounds ($65.5 million), down
76 percent on the first quarter and the lowest since the first
quarter of 2009.
In contrast, such fundraisings across AIM were up 21 percent
from the first quarter.
“The lack of confidence evident in the decline of the index
had a pronounced impact on overall market demand for the sector
and contributed to the very low levels of fundraising,” Clark
said in the report.
He said there was still a divergence in capital
availability within the industry, with larger players finding
sources of finance relatively plentiful, while smaller companies
were finding things increasingly tough.
“At the smaller end of the spectrum, those companies that
can deliver and communicate exploration and commercial success
will crowd the others out. The remaining companies will be
compelled to seek out alternative funding routes, which could
result in further consolidations as the year progresses.”
Seventy-nine percent of Oil and Gas Eye Index stocks fell in
the quarter, mostly because of poor drilling results, the report
said.
It picked out Wessex Exploration and Northern
Petroleum after their drilling disappointment in French
Guiana; New World Oil and Gas after a poor hydrocarbon
show in Belize; Kea Petroleum for its abandonment of a
disappointing well in New Zealand, and Petroceltic International
which failed to find worthwhile deposits off Bulgaria’s
coast.
Reuters called the above named companies for reaction on
Monday. Petroceltic’s chief executive, Brian O’Cathain, agreed
that the sector was out of favour, but said his company was well
funded.
“Fund managers have been turned off the sector for a while
now, but it’s all part of a cyclic process,” he said.
“Smaller companies who have had a string of failures and
have little chance of success, of course they’re going to
struggle. It puts them in a vulnerable position, but we’re miles
away from all that.”
The other four companies had no immediate comment.
0.6428 British pounds)