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IHS: more mergers for small E&Ps
8/29/2011


Current market conditions could lead to a new round of consolidation among smaller E&P companies in the UK and the US, according to an IHS report released 29 August 2011.

Uncertainty surrounding future oil prices and falling share prices have made nearly 100 small E&P companies in the UK and two dozen large US producers 'prime targets' for consolidation, IHS said in its weekly IHS Herold Oil and Gas Perspectives report.

Many of the smaller E&P companies listed on London's AIM index have interest in promising oil & gas fields around the world but lack the revenue to develop them, said report author and IHS director of energy company research Robert Gillon.

'Without revenue, they are dependent on future funding to continue operations. That funding can be accomplished either through additional share sales or a farm-out of an interest in their exploration licenses,' Gillon said.

The report also found about two dozen S&P index-listed US companies with a market capitalization of $500 million to $3 billion that could be ripe for consolidation.

'Some of these US companies are also reliant on external financing to fund their capital budgets, but all of them have developed reserves that could be sold in the very liquid transaction market,' Gillon said.

Both the AIM and S&P indexes have shed several percentage points in recent weeks. In late August, the AIM index was down 40% from its recent peak, 'which means the average (E&P) company would need to sell almost 70% more new shares to raise the same amount of money as it did a few months ago. Meanwhile, optimism about future oil prices is more subdued, and the potential farm-in partners recognize that. As a result, they will demand more favorable terms on the deal,' the report said.


By: Russell McCulley,

http://oilonline.com/