A report by accountants and business advisers BDO LLP entitled ‘Drilling down: an overview of performance and prospects of AIM oil and gas companies in 2014’ found that the UK sector market capitalisation fell by 44% in 2014 from £8.8bn to £4.9bn. In Scotland there are four AIM listed oil and gas companies accounting for 14.8% of the total number but constituting 36.2% of the total market capitalisation.

The largest fall in market cap among the Scottish firms was Lansdowne Oil and Gas which saw its value drop 59.7%, while the best performer was Bowleven which fell 22.4%. Oil and gas firms were the largest fallers among Scotland, and the UK’s AIM listed firms, as the oil price caused a substantial fall in their value coupled with weakening investor appetite in the second half of 2014.

The report also found that the average market capitalisation of the top 10 AIM listed firms was £252m at the end of 2014. In Scotland none of the AIM listed oil and gas companies comes close to this level with Faroe Petroleum the largest at £165.54m and Lansdowne Oil and Gas the smallest at £13.53m.

Neil McGill, corporate finance director with BDO, said: “Being a growth market

AIM is inherently volatile and junior cap EP stocks are geared to the cyclical nature of the sector. The fall in sector shares is to be expected given the substantial decline in the oil price over the last six months.”

“In addition due to the shift in investor sentiment, AIM listed Oil and Gas companies found it increasingly difficult to raise finance as 2014 progressed, with 80% of secondary issues in the first half of the year and only 20% in the last six months.”

Neil concluded: “The outlook suggests there is unlikely to be a significant improvement in sentiment in the short term at least, so firms may need to consider alternative sources of finance from specialist investors to the sector. With the funding market tight we expect to see MA and consolidation continue.”