A crisis in confidence has led to a nosedive in the fortunes of oil and gas firms on the Alternative Investment Market, according to Ernst and Young.
The professional service group’s latest Oil and Gas Eye Index report, one of a series tracking the fortunes of energy companies on the junior AIM stock market, highlights a 44% fall in share prices over the third quarter of 2008. It is the worst quarterly fall since the index inception in 2004.
Alec Carstairs, oil and gas partner at E&Y in Aberdeen, said: “In just three months all of the gains made since mid-2004 had been wiped out in a steep downward trend, which has continued into the fourth quarter of 2008. The turbulent landscape meant that all junior oil and gas companies, regardless of size and development stage, saw their share prices tumble.
“The situation for many oil and gas juniors is nearing critical. The doors to equity and capital are fast closing and the importance of cash cannot be underestimated.
“A number of companies are already beginning to warn of uncertainty as to their ability to continue as a going concern. Current performance and future pro-spects are dominated by concerns that funding may not be forthcoming.”
E&Y says the downfall of some companies could, however, create opportunities for others. Jon Clark, a director in its oil and gas team, said that with shares and market values on a downward trajectory, and cash-strapped explorers finding it difficult to raise capital or debt to finance development plans, consolidation was likely.
Mr Clark added: “Majors, mid-tier producers and larger AIM companies with healthy balance sheets and cash flow will remain on the hunt for quality assets, albeit at a more modest price.
“Financially constrained companies with advanced, large-scale assets will become attractive targets, while juniors in a robust enough financial position to execute a deal will seek to acquire scale through consolidation.”