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Q1 AIM Oil & Gas Producers review – Zeus Capital

Sector off to a slow start in 2017; but Q2 may see it get back on track; and Hurricane Energy seeks funding for an EPS

  • After a substantial improvement from £329 million in 2015 to £684 million in 2016, the pace at which new funds were being invested in the constituents of AIM’s Oil & Gas Producers sub-sector slowed somewhat in the first quarter of 2017. Whether because of flat commodity prices, a dearth of attractive opportunities, or some combination of the two, by the end of the period just £131 million, or £523 million on annualised basis, had made its way into the space. As the chart shows, while this is somewhat better than was achieved in the four years from 2012 to 2015, it is still disappointing in a longer-term context.
AIM Oil & Gas Producers

Source: London Stock Exchange

  •  Nevertheless, there are reasons to believe that the pace of investment will improve in the second quarter. Already, IGas Energy Plc (LON:IGAS) has completed a refinancing, which saw it raise £47 million by way of a placing and open offer with a further £55 million of debt converted into equity. In addition, i3 (UK North Sea appraisal / development), T5 (West Africa exploration), and Great Bear Petroleum (Alaska exploration) are all expected to seek a listing before the summer holidays. Meanwhile, it is clear that a number of other companies are going to require additional funding of some description sooner rather than later.
  • Hurricane Energy Plc (LON:HUR) is front and centre among the companies that will require additional funding of some description soon. At a recent Capital Markets Day, it explained that it plans to pursue a near-US$500 million project to install an Early Production System (EPS) at the very exciting Lancaster fractured basement discovery West of Shetland. Although Hurricane is pursuing a farm-out and looking for debt-finance, it seems likely that there also will be an equity component to any funding package. Unfortunately for investors, it is often difficult for companies such as this to maintain share price growth when their attention switches from the excitement of exploration and appraisal drilling to more mundane matters such as money and the execution of a development project.

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