Small UK Energy Groups Covered in Red Ink

Nine out of 10 small London-listed oil and gas companies are making losses, according to new data highlighting the full impact of the plunging crude price on junior energy groups.

A survey of 104 exploration and production companies listed on the London Stock Exchange’s Aim market by Company Watch, a research firm, found 42 per cent were in its “warning area” at the end of last year.

This means the groups are 50 times more likely to suffer financial distress than a typical company, according to Company Watch. It highlights how energy groups’ efforts to cut costs to cope with the oil price rout have not been universally successful.

Company Watch found the combined market value of the 104 companies had dropped by 40 per cent in the past year. Ninety per cent were making pre-tax losses in their most recent accounts, but the overall performance was better than in 2014 partly because costs have been cut significantly.

Ewan Mitchell, head of analytics at Company Watch, said: “Smaller oil and gas companies on Aim will remain under severe pressure because fundraising in this environment will be testing, and many will have already cut costs to the bone last year with little room for more this year. We expect 2016 to be challenging for the Aim companies.”

The energy industry has been hit hard over the past 18 months, as the price of Brent crude has slumped from $115 a barrel to below $40 — the lowest level in more than a decade.

Smaller oil and gas companies have fared particularly badly, with many having taken on large amounts of debt as they aggressively pushed for new finds while the oil price was still high.

The Company Watch data show that the 104 companies’ combined gross debt has remained stubbornly high, at £2bn at the time of these groups’ last accounts — a similar level to the same time in 2014.

The data also highlight the broader stresses being placed on North Sea operators listed outside of the UK.

Iona Energy, the UK subsidiary of a Canadian listed company, last week announced it had called in administrators to help dismantle its operations.

Iona had hoped to sell an interest in its Orlando field, to the east of Shetland, but a prospective buyer pulled out, leaving the company with little option but to begin insolvency procedures.

Atlantic Petroleum, a Faroese company listed in Denmark and Iceland, which owns 19 North Sea production licences, is also struggling, having missed a debt repayment in December.

PA Resources, an explorer listed in Sweden that focuses on the North Sea and Africa, announced last year that it would liquidate its assets after failing to secure funding.

Larger oil companies are also grappling with the fallout from the oil price rout, but are generally coping better because they have stronger balance sheets.

First Oil, a privately-owned North Sea oil company, said at the weekend that it would not proceed with a planned financial restructuring. A report in the Sunday Times said the company is now up for sale.

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