London, 3 NOV 2008 - Higher oil prices, combined with the success of wells being brought on-line, show an increase of 32% in revenues for 50 of the largest listed oil and gas companies outside of the FTSE-100, according to PricewaterhouseCoopers (PwC) inaugural mid-tier oil and gas publication Prospects*. Companies with producing assets have also seen a significant increase in profitability with a pre-tax profit of US$11.3bn, a huge improvement from last year’s US$8.0bn. Dividends rose by 70% to US$2bn although this increase is modest in absolute terms relative to the improvement on the profitability of producers.
Brian Puffer, partner at PricewaterhouseCoopers says:
“These companies represent 89% of the market capitalisation of listed oil and gas companies outside the FTSE-100 and 68% of AIM oil and gas companies. The publication is an indicator of the good health of the industry.”
The sector saw a 50% increase in aggregate market capitalisation to US$80.1bn (£40.2bn) with the International Main Market experiencing a significantly higher growth rate than AIM. This was due to a combination of higher organic growth and the transfer of Oilexco and Imperial Energy Corporation from AIM. The two companies had a combined market of capitilisation of US$4,666m (£2,344m).
The largest six companies represent 33% of the total market capitalisation and of these six companies, the largest was a new listing on the International Main Market in 2007. The other five have seen an increase of 63% in market capitalisation. This reflects their success in delivering high levels of production from existing and/or new fields and increased demand for oil equipment and services.
The only reduction seen by these companies was in financing activities with net cash flow down 35% to US$5.4bn although interestingly, companies with oil equipment, services and distribution activities saw an increase of 37% in financing activities of $1.2bn. Difficulties in raising finance are more prominent within the AIM market and the trend of reductions in cash being raised has continued into 2008.
Brian Puffer, partner at PwC says:
“These financing challenges are being reflected within a large deficit between investing and financing activities, predominantly for oil and gas producers. The difficulties in raising finance to invest means companies are increasingly dependent on their cash flows from operations to fund future expenditure.”
Companies with existing production activities are better placed than companies who have focused on exploration. Further pressure will be the need to reduce associated costs to maximise funds available for future exploration and development.
With the current challenging economic climate, demonstrating shareholder value is key. This can be achieved by thorough analysis of investment assets and strategies, liquidity profiles and financial risk management.
Surprisingly, due to the lack of an agreed industry standard on disclosure of information, we came across difficulties during our research in compiling aggregate statistics for companies proven and probable reserves or production. Although there is guidance in the UK Statement of Recommended Practice – Accounting for Oil and Gas Exploration, Development, Production and Decommissioing Activities, there are currently proposals for public opinion on the disclosure of reserves. PwC feels the ongoing absence of a common approach is detrimental to financial statements.
Brian Puffer, partner at PwC says:
“We believe that an opportunity exists for many companies to capture more shareholder value by providing enhanced disclosures about key drivers such as exploration successes and/or failures, movements in resources and political risk. With more companies competing for funding, it is not a question of if, but when consolidation in the market will take place.”
Notes to Editor:
- Prospects* is a new publication by PricewaterhouseCoopers. It provides an insight into the aggregated performance of the mid-tier oil and gas industry, as represented by 50 of the largest listed companies outside the FTSE-100.
- The publication includes both oil and gas producers and oil equipment, services and distribution companies within our selection.
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