Professional services firm Ernst & Young’s oil and gas eye index, which measures the performance of oil and gas company stocks, fell by 6.7% in the second quarter of 2010, bringing to an end a run of five consecutive quarters of growth in the index.
Alec Carstairs, oil and gas partner at Ernst & Young, said: “Oil and gas stocks were hit by the wider sell-off in equities as investors anxiously watched the sovereign debt crisis in Europe unfold.
“There also continue to be lingering concerns over the strength of global economic growth, particularly with many governments proposing substantial and wide-ranging spending cuts in an attempt to reduce their fiscal deficits.”
There were no new oil and gas flotations on AIM during the second quarter and two companies chose to de-list, highlighting that fund-raising for some junior oil and gas companies remains challenging.
Secondary fund-raising in the oil and gas sector on AIM totalled £467million in the second quarter, more than double the amount raised in the previous quarter and 66% higher than the total raised in the second quarter of 2009.
Jon Clark, oil and gas director at Ernst & Young, said: “Although the total amount raised in the second quarter was much higher than the previous quarter, the investment was restricted to a select group of junior oil and gas companies. Only 18 of the 99 listed on AIM successfully raised additional funds during the second quarter.
“A significant proportion of those raising funds in the second quarter of 2010 intend to use the proceeds to progress developments after promises to shareholders and project partners.”
In the second quarter, 35% of the companies in oil and gas had share price gains. The “winners” in this quarter were those companies able to show exploration success with important oil and gas discoveries. But 65% of AIM oil and gas firms registered a fall in their share price in the second quarter. The main factors impacting the share price of the fallers were disappointing drilling results and disputes with authorities over contractual rights.
Mr Carstairs said: “Mixed economic data is preventing consensus building around the sustainability of economic recovery, and confidence returning to the investment community.
“Investors tend to look for safe havens in uncertain times, which could hamper the ability of perceived riskier junior oil and gas stocks to attract funding.”