Special Focus on Independent Oil & Gas
Trends, Analysis and Outlook for the AIM E&P Sector and Oil Prices Written by Andrew Matharu, Head, Oil & Gas, Westhouse Securities
2011 AIM Oil & Gas Summary
2011 will be remembered as a bleak year for investors in the oil & gas sector with the AIM Oil & Gas sector underperforming by 36% on an absolute basis, despite support from the oil price, which averaged US$110 per bbl in the case of Brent, and some notable exploration successes. Risk aversion, the European debt crisis, capital outflows and liquidity all played a role during one of the most difficult years for the sector in recent times. However, towards the end of 2011 the UK oil & gas sector had a relatively stronger performance, buoyed by a marked improvement in corporate M&A activity, and increased by 14% versus a 1% increase in the AIM All- Share index during Q4 2011.
Corporate Activity Stepped Up…
The final quarter of 2011 witnessed some high-profile consolidation within the sector, with the offers for Dominion Petroleum and EnCore Oil by Ophir Energy and Premier Oil, respectively, in the UK. Shale plays were again in focus in the US, with Statoil’s acquisition of Brigham Exploration. In our view, it is highly likely that the pace of M&A activity will step up during 2012, as a result of the opportunities offered via distressed corporate valuations and the high levels of free cash flow available to the sector’s natural consolidators, from the high oil price. The first signs of additional consolidation have already appeared in 2012, with the announcement from Cove Energy that the company has put itself up for sale.
…but Capital Markets Activity Slowed Down
Primary and secondary fund raising activity was particularly lacklustre during the final quarter of 2011, with only two material capital raisings, both by companies with management teams and investment themes that are well known to the investor community: Bowleven raised $120m to progress its recent discoveries and developments, offshore Cameroon and Rockhopper Exploration raised £45.6m to consolidate its position in the Sea Lion discovery and for further appraisal of the North Falklands Basin.
In addition, and of note, Xcite Energy also raised £25.8m via private placement and established a £60m equity credit agreement in an effort to progress its flagship Bentley Field project - a rather expensive and dilutive form of project financing, due to the lack of available debt financing for heavy oil projects. Figure 1 highlights monies raised on AIM by oil & gas companies via primary and secondary issues from Q1 2010 to Q4 2011.
Figure 1: Monies raised on AIM by oil & gas explorers & producers Jan 2010 – Dec 2011 Monies raised (£m)
100 150 200 250 300 350 400 450 500
50 0
1/10 3/10 5/10 7/10 9/10 11/10 1/11 3/11 5/11 7/11 9/11 11/11 SOURCE: AIM monthly statistics. 4
Secondary Placings IPOs # IPOs (RHS)
3
2
1
0
Drillers and Dealers :::
::: February 2012 Edition
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