Ernst & Young: Junior Oil Firms Remain Vulnerable to Takeover
by Jon Mainwaring
Monday, February 20, 2012
Ever-tightening credit markets mean junior oil and gas companies remain vulnerable to takeover by their larger peers. So said Ernst & Young Monday, when the accountancy and financial services firm reported the latest figures from its 'Oil and Gas Eye' index.
Credit markets are tight and continue to suffer because of the Eurozone debt crisis. Junior oil and gas companies looking to deliver on exploration and development projects will need to consider a range of options to meet funding requirements, said E&Y.
Meanwhile, largely well-capitalized majors and national oil companies have a significant balance sheet advantage to exploit, said the firm.
E&Y's index – which monitors stock price movements of oil and gas companies on London's Alternative Investment Market – ended 2011 22 percent lower than it had begun the year, compared to gains of 123 percent and 47 percent made in 2009 and 2010 respectively.
Meanwhile, fundraisings on London's junior equity market amount to 47 percent less than in 2010 at $1.6 billion (£1 billion).
Jon Clark, an E&Y oil and gas partner, believes such figures point to further mergers and acquisition activity in the oil and gas industry.
"Many junior oil and gas companies are going to find fundraising – whether debt or capital – increasingly challenging," Clark said.
"Those seeking to deliver on exploration and development projects have to consider a broad range of options. All the while, well-capitalised majors and National Oil Companies (NOCs) will be eyeing opportunities to exploit their balance sheet advantage," he added.
"The global oil and gas arena averaged three transactions per day in 2011, so difficult funding dynamics should result in it remaining a hotbed of M&A activity for much of 2012," Clark concluded.
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