AN INCREASING number of deals involving smaller oil and gas companies has been predicted by Ernst & Young.
This comes as it emerged that the firm’s Oil and Gas Eye Index fell by 26% during the third quarter of 2011 – the largest quarterly drop in its value since the last three months of 2008.
The index, which monitors the performance of oil and gas companies on the Alternative Investment Market (AIM), has been in decline since the start of the year – all but wiping out the gains achieved in 2010.
Alec Carstairs, managing partner at E&Y in Aberdeen, said: “Those companies with weaker balance sheets and particularly those with development projects looming will look towards larger, better-capitalised acquirers. The pending acquisitions of Dominion Petroleum by Ophir Energy and EnCore by Premier Oil can be seen as M&A bellwethers.”
Three new companies – Bluebird Energy, Enteq Upstream and Bayfield Energy – joined AIM during the quarter, raising £71million. However, Mr Carstairs believes they are exceptions as listings stall.
“These three companies may have completed IPOs, but the outlook for the remainder of the year is less positive with many planned listings being postponed until 2012.”
Secondary fundraising by AIM-listed oil and gas companies totalled £168.7million during quarter three, 48% lower than the amount raised in the comparable quarter of 2010 and 37% lower than the figure raised in the previous three months.
More than three-quarters of that total relates to a single company – Gulf Keystone Petroleum – with no capital raised by 90% of all AIM-listed oil and gas companies. This was mirrored across the wider AIM market, with the £413.8million raised less than half of the £954million raised in the second quarter.
Mr Carstairs added: “Fundraising activity largely occurred at the start of the quarter, with conditions deteriorating as summer progressed. The slowdown in the global economic recovery and the market turbulence created by issues including the US credit downgrade and the eurozone sovereign debt crisis will continue to turn investors off riskier assets. This doesn’t bode well for quarter four.”