UPDATE 1-M&A on the way as AIM-listed oil stocks struggle
By Andrew Callus
LONDON Aug 19 (Reuters) - Takeover action is on the horizon among smaller and weaker London-listed oil companies because they are finding it harder to raise funds, while larger peers are having no such difficulty, according to consultancy Ernst & Young.
Its Oil and Gas Eye Index, which monitors the sector within London's Alternative Investment Market (AIM), fell 12 percent in the second quarter.
That lagged a broader AIM market down 5 percent and the FTSE 350 Oil & Gas Producers' Index of mainstream oil and gas stocks off by 2 percent, oil and gas transactions partner Jon Clark noted in the index report.
Second-quarter equity fundraisings among Oil and Gas Eye Index stocks totalled 42.1 million pounds ($65.5 million), down 76 percent on the first quarter and the lowest since the first quarter of 2009.
In contrast, such fundraisings across AIM were up 21 percent from the first quarter.
"The lack of confidence evident in the decline of the index had a pronounced impact on overall market demand for the sector and contributed to the very low levels of fundraising," Clark said in the report.
He said there was still a divergence in capital availability within the industry, with larger players finding sources of finance relatively plentiful, while smaller companies were finding things increasingly tough.
"At the smaller end of the spectrum, those companies that can deliver and communicate exploration and commercial success will crowd the others out. The remaining companies will be compelled to seek out alternative funding routes, which could result in further consolidations as the year progresses."
Seventy-nine percent of Oil and Gas Eye Index stocks fell in the quarter, mostly because of poor drilling results, the report said.
It picked out Wessex Exploration and Northern Petroleum after their drilling disappointment in French Guiana; New World Oil and Gas after a poor hydrocarbon show in Belize; Kea Petroleum for its abandonment of a disappointing well in New Zealand, and Petroceltic International which failed to find worthwhile deposits off Bulgaria's coast.
Reuters called the above named companies for reaction on Monday. Petroceltic's chief executive, Brian O'Cathain, agreed that the sector was out of favour, but said his company was well funded.
"Fund managers have been turned off the sector for a while now, but it's all part of a cyclic process," he said.
"Smaller companies who have had a string of failures and have little chance of success, of course they're going to struggle. It puts them in a vulnerable position, but we're miles away from all that."
The other four companies had no immediate comment.
0.6428 British pounds)
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