14 July 2010

Oil and gas players to watch

The oil and gas sector has made headline news in recent weeks, barring BP and the expensive and environmentally disastrous Gulf of Mexico incident. Shares in Dana Petroleum soared by as much as 23 per cent on 2nd July on news Korea National Oil Corporation is in talks to take over the British FTSE 250 oil and gas explorer which owns fields in the North Sea, Egypt and Morocco.

Another company to watch out for is the private equity-backed upstream oil producer Fairfield Energy, which could be valued at as much as GBP 720 million when it lists on the London Stock Exchange. The company is moving to capitalise on an increase of activity in the North Sea, aiming to sell as many as 150 million new shares at a price of between 220 pence and 420 pence.

The move to go public comes at a tricky time marked by market volatility and weak oil prices. Against this background Oil & Gas UK is predicting a rebound in development drilling in the North Sea UK continental shelf with overall capital investment expected to exceed last year’s – rising to more than GBP 5 billion from GBP 4,700 million in 2009.

Latest oil and gas figures released by Deloitte reinforce the suggestion that activity in the North Sea is ramping up. According to the financial consultancy, a total of 28 exploration and appraisal wells were spudded in the UK sector between April and June this year compared with just 12 wells in the first quarter of 2010. These reports come as Premier Oil raised its estimated reserves in the four field Catcher complex after further drilling revealed the site could contain between 300 million to 350 barrels of oil.

Away from home, Tullow Oil, a London-registered independent oil and gas giant leading a growth push in Africa, has announced it has received approval to acquire a number of blocks in Uganda from upstream explorer Heritage Oil. The decision will hopefully close a door on months of wrangling over the two fields in the Lake Albert basin; the sale has been delayed by a disagreement between the Ugandan government and Heritage over capital gains tax.

It would not be right to cast an eye over the oil and gas sector without mentioning the energy giant BP, which has been taking immense flak for the Gulf of Mexico oil spill. The troubled behemoth is reported to have been seeking financial support from Middle East sovereign funds – sounding out interest from institutions to buy a strategic shareholding.

The move is being heralded as an attempt to stave off a hostile takeover after BP’s market value has more than halved in less than three months due to the rising cost of the Gulf of Mexico oil spill. Its shares have slumped over the period from 655.40 pence on 20th April, a day before the stock market reacted to news of the Deepwater Horizon incident, to bottom out at a 52-week low of 296.00 pence on 25th June (closed at 302.90 pence). Since then confidence has slowly returned with stocks gradually rising to 362.00 pence by the time the bell rang on 7th July.

© Zephus Ltd