Special Focus on Independent Oil & Gas
Stock Market View: Lessons for 2012 Written by Simon Hawkins, Managing Director, Omni Investment Research
2011 saw significant volatility in both commodity and stock markets resulting in a major dislocation between capital markets and fundamental drivers of the O&G industry. In this article Simon Hawkins, former Head of Energy Equity Research at MF Global, looks back at what happened in 2011 from a stock market viewpoint and draws out a number of practical lessons for 2012.
2011: Dislocated Markets
Last year AIM Oil & Gas stocks overall lost c30% of their value. At the same time Brent crude prices rose 5%. This dislocation of stock prices from industry fundamentals made 2011 an extraordinary year for equity analysts.
We started the year with a degree of post-credit crunch relief before it quickly turned into a false dawn, after which sluggish markets slid increasingly fast. By summer all hell had broken loose. Trouble in Eurozone sparked extreme volatility, step-change stock prices and a sudden realization by traders and equity sales that most investors had virtually finished trading for the year by the middle of July. The drought in equity trading volumes continues to inflict damage today on both large and small investment banks resulting in the exit of weaker players, over-reliant on commissions as a revenue stream.
From my perspective life was pretty difficult: me and my colleagues were launching coverage on companies with a combined market capitalization of around $800 billion with industry fundamentals suddenly ceasing to drive stocks, the notion of investing for the long-term was exchanged for short-term trading, every day my Bloomberg was painted red (that’s a bad thing) and ultimately my employer, MF Global, went up in flames spectacularly on the back of ill-judged bets on Southern European sovereign debt.
Oil Prices
Although the key driver of the sector, crude oil prices, were volatile - especially over the summer – Brent crude generally stayed strong within a band around $95-120/bbl. I see this as one of the most significant events of 2011 (alongside Tullow’s Zaedyus success) since there is now lot more confidence across the industry that oil prices are likely to stay strong for the medium term. I would suggest the way Big Oil has renewed its focus on frontier exploration and its strategic shift towards upstream is evidence that even these oil-tanker-like entities are buying into it.
Drillers and Dealers :::
::: February 2012 Edition
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