Oil & Gas - volatility deters capital raisings

Oil & Gas - volatility deters capital raisings

In recent years, the Oil & Gas sector has been dominating headlines in that what was previously a relatively predicable industry is now viewed as increasingly volatile. This volatility may have contributed to the fact that in 2019 no Oil & Gas companies were admitted to the LSE (a 100% decrease from 2018 when six companies announced their intention to float). Several factors have contributed to market uncertainties including slower growth in China and elsewhere, rising US production, regulatory changes, geopolitical tensions and the shift to renewable energy alternatives.

This typically means Oil & Gas companies are seeking alternative strategies to accommodate the changes and maintain sustainability. Concerns around sustainable oil prices have particularly increased in the last couple of years, as noted by  Hurricane Energy plc in their 2018 annual report (p 22):

Oil prices can be volatile and subject to fluctuation in response to relatively minor changes in the supply of, and demand for, oil, market uncertainty and a variety of additional factors that are beyond the control of the Group. In particular, there is a greater market shift towards renewable energy sources and governments, including the United Kingdom, are developing their fiscal policy and regulatory frameworks to address the impact of climate change. There is a risk that climate change will have an adverse impact on oil priceHurricane continues to monitor the developing risks that climate change poses to the Group and continues to monitor the developing policy environment at national and international level and will adapt our carbon policy according.’

Similarly, Premier Oil plc noted in their 2018 annual report (p 38) that the specific risks for 2019 include:

‘…inability to execute a satisfactory oil hedging programme due to low forward oil prices; uncertainty in implementation of IMO2020 regulations impacting fuel oil pricing…’.

Volatility and uncertainty have undoubtedly impeded the proposed flotation of Saudi Aramco, with the company earlier this month citing ‘market conditions’ for the delayed listing of a small percentage of its shares. Aramco is currently looking to float a 1-2% stake on the Kingdom’s Tadawul market, with a possible further tranche released later onto a foreign exchange, in what would be one of the largest ever public offerings, possibly worth upwards of $20 billion for every percentage point offered (although valuation and pricing is naturally much in debate).

Market reports indicate that whilst larger companies are more robust and can better manage the price variations and commercial risks, smaller Oil & Gas companies struggle to navigate the often-dramatic shifts in prices and conditions.  

The Market Tracker team will monitor IPOs and risk factors in the Oil & Gas industry for further trends.

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