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Oil and Gas index up 20% in 2010

Monday 24th May 2010
Ernst & Young’s Oil and Gas Eye index ended the first quarter of 2010 with an impressive gain of 20%. This is the fifth consecutive quarter of growth in the index. Since the start of 2009 the index has risen by 167%, but it still remains 8% below its level at the beginning of 2008.

Junior oil and gas companies also outperformed their peers listed on the Main Market. The FTSE Oil and Gas index closed the first quarter up 3%.

Alec Carstairs, oil and gas partner at Ernst & Young said: "At the height of the financial crisis, investors demonstrated a preference for larger-scale exploration and production players, leaving many junior oil and gas companies struggling to raise funds.

"The current weaknesses in refining margins and concerns over the long-term growth prospects for a number of the larger, integrated players may lead to a renewed, albeit selective, appetite for junior stocks."

Secondary fund-raising in the oil and gas sector in the first quarter of 2010 was £180million compared with £547million in the previous three months, a decrease of 66%. However, the total raised was 24% higher than in the first quarter of 2009.

Jon Clark, director of oil and gas at Ernst & Young said: "There were 19 oil and gas companies that managed to raise funds on AIM during the first three months of 2010. A significant proportion of them indicated that they intended to use the proceeds to finance and accelerate drilling programs.

"The 'winners' this quarter were definitely those companies able to demonstrate additional resource potential through new discoveries or upward revisions to previous reserves estimates."

The outlook for natural resources IPOs in 2010 is more promising than it has been in the last two years, with several oil and gas companies actively working towards an IPO this year.

Carstairs said: "Investors will be attracted to oil and gas companies that have experienced management with a proven track record of delivering investment growth."

He added: "The oil and gas companies that are likely to find support from institutional investors and financiers in the next 12 months will be those with a quality asset base and a history of delivering projects on time and within budget."

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Mike Jones

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