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EY Oil and Gas Eye Q2 2014

Hydrocarbon Engineering,

EY has released a report in which it highlights that its Oil and Gas Eye rose 3% in Q2 2014.

Junior oil and gas companies outperformed the wider AIM market for the first time in two years, with the AIM All-share index declining nearly 8%. However, the index’s performance remains volatile, and junior oil and gas companies underperformed their larger peers. The FTSE 350 Oil & Gas Producers’ index gained 8% in Q2. The constituent companies received some support from a rise in oil prices following political unrest in the Middle East.

According to EY, deal making was back on the agenda of junior oil and gas companies this quarter. They are engaging in acquisition and farm-out to diversify exploration risk and secure funding for development opportunities by buying producing assets. Proposed deals include the acquisition of Mediterranean Oil & Gas by fellow AIM-listed company Rockhopper Exploration.

Consolidation is also taking place in the shale industry. Although so far only around five wells have been drilled, a recent study commissioned by the UK Onshore Operators Group (UKOOG) and prepared by EY estimates that the development of shale gas in the UK could give British business a £ 33 billion investment opportunity.

EY highlights that UK onshore operations are engaging in M&A activity to build scale and secure early mover advantage. In May, IGas said it had agreed to buy Australian junior, Dart Energy, in a recommended deal valued at approximately £ 117.1 million. The combination of IGas and Dart will create a leading onshore oil and gas company with the largest are in the UK under license.

Egdon Energy has announced the proposed acquisiton of the onshore shale gas business and assets of Alkane Energy. The deal will almost double Egdon’s prospective shale gas acreage in Northern England, according to EY.

Earlier this year, Egdon and IGas said they had entered into farm-out deals with Total, marking the entry of the first oil major into UK shale gas exploration. These deals suggest keen interest will be likely from a range of explorers in the 14th UK Onshore Licensing Round, expected later this year.

Main movers

According to EY, Cairn Energy’s share price performed best among FTSE 350 oil and gas companies, rising 21% over Q2. In its interim management statement released in May, Cairn saud it had reached a key milestone for the Kraken and Catcher fields in the North Sea. BNP Paribas has agreed to fully underwrite a debt facility to part fund the development of these assets.

EnQuest’s share price rose 16% over Q2. In June, it said it is expanding its footprint in Malaysia by buying ExxonMobil’s interest in the Seligi oil field and the PM8 Production Sharing Contract.

The price of Royal Dutch Shell’s London-listed shares increased 14% over Q2. In June, it further reduced its shareholding in Woodside Petroleum with the sale of shares representing 19% of Woodside’s issued share capital. Shell also announced the sale of some of its Eagle Ford shale acreage in Q2.

Tullow Oil also divested some non-core assets, including the sale of interests in two gas fields in the Southern North Sea. It experienced mixed exploration results over Q2, with disappointments in Ethiopia, Mauritania and Norway, but success in Kenya with the Twiga-2 exploratory sidetrack and the Ekunyuk-1 well. Its share price ended Q2 up 15%.

In June, Premier Oil announced the appointment of its Finance Director, Tony Durrant, as its new CEO. Premier enjoyed some exploration success over Q2, according to EY. It also made progress on its strategy to divest non-core assets, selling interests in fields in Norway and the UK North Sea. Premier’s share price ended Q2 up 15%.

Ophir was the only FTSE 350 oil and gas company to register a fall in share price over Q2. In June, it said the Okala-1 well offshore Gabon, in which it has a 50% operated interest, had not found significant hydrocarbons. The completion of drilling operations on this well marked the end of Ophur’s 2014 exploration campaign in Gabon. Its share price ended Q2 down 9%.

In April, Energy Investments Global Ltd said it had reached agreement on the terms of a recommended cash offer for Heritage Oil. The deal values Heritage’s issued ordinary share capital at approximately £ 924 million.

Adapted from a report by Emma McAleavey.

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