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Who are the top 25 independent oil and gas producers in the FTSE?

UK upstream independents league table 2016

The latest UK upstream independents league table reflects the gradual but progressive recovery and steadying of oil prices in the second half of 2016 as well as the macroeconomic impacts on overall market capitalisations. The total market capitalisation of the top 25 producers increased 62 per cent between the end of 2015 and the end of 2016. While the market value of nearly all independents rose during the year, successful drilling programmes and effective financial or operational restructuring were generously rewarded by the market.

Upstream independents league table 2016

Key extracts

  • Oil prices slowly recovered from their lows of January 2016 and hovered around the $50 per barrel mark for most of the second half of the year. The OPEC agreement on production cuts further boosted oil prices towards the end of 2016. 
  • Reflecting the gradual improvement in oil prices, investor confidence in the sector started to return. As a result, the market capitalisation of most companies increased during the year, but those who completed successful drilling programmes, financial or operational restructuring significantly outperformed their peers. 
  • The total market capitalisation of the top 25 companies rose 62 per cent from £6.4 billion at the end of 2015 to £10.5 billion at the end of 2016. 
  • Tullow Oil continued to lead the league table. The increase in the company’s market value accounted for a third of the league table’s total market value increase.

Who entered the league table?

  • Two independents returned to the league table in the year: 
    • Gulfsands Petroleum’s successful farm-out agreement for one of its Colombian assets lifted the company’s share price, helping it re-enter the league table at 22, up from 49
    • Volga Gas nearly doubled the daily production from its assets in Russia’s Volga region, boosting its share price and moving it up to 24 in the league table from 27.

Who were the top performers?

  • Two independents saw their share prices soar following successful drilling programmes:
    • Hurricane Energy’s market capitalisation increased more than nine-fold after drilling two successful wells at its Lancaster field, west of Shetland 
    • Sound Energy’s two wells drilled in the Tendrara acreage in Morocco promised large potential and quadrupled the company’s share price over 2016.

Who left the league table?

  • Two independents left the league table because of financial and/or operational difficulties in 2016: 
    • IGas faced financial difficulties and is considering debt restructuring and portfolio management opportunities
    • Sterling Energy withdrew from a number of offshore drilling projects in Cameroon, Mauritania and Madagascar in 2016 and decided to focus on shorter-cycle, revenue generating programmes.

Where was the funding coming from?

  • With much uncertainty around the price of oil during the year, independents focused on managing costs, increasing operational efficiency as well as cash generation and conservation.
  • In a continued attempt to reduce debt and strengthen their balance sheets, a number of companies reportedly renegotiated the terms and conditions of their debt facilities. Banks, whose balance sheets are healthier than during the financial crisis, seem to have had greater flexibility to amend terms and support companies through deferrals, waivers and even refinancing. 
  • Attracting new bank funding continued to be difficult in 2016. The handful of attractive, low risk projects that got sanctioned during the year were mostly funded by issuing bonds or new shares, or through more creative financing solutions.

Mergers and acquisitions? But who will buy in this market?

  • Many large internationals and mid-tier players continued to divest to rationalise their asset portfolios in 2016. However, we also started to see some strategic acquisitions later in the year. 
  • As management teams’ confidence in oil prices grew, the number of deals involving independents acquiring assets from large internationals increased. However, most of the transactions were bespoke asset-related deals to complement existing portfolios. 
  • The number of deals involving private equity-backed vehicles continued to rise, as did the profile of private equity involvement in the sector.

Outlook

  • The OPEC deal provided a much needed boost to oil prices at the end of 2016. However, its medium- and longer-term impact will depend on a number of factors, including whether production caps are respected and the speed and scale of response from US shale producers, which in turn could dampen oil prices. 
  • Nevertheless, the industry is expecting stabilised prices in the $50 to $60 per barrel price range which should provide some respite, begin to replenish balance sheets and ultimately allow broader, but likely cautious investment. 
  • As executive teams consider selective investment in sustainable growth, we are likely to start to see M&A increase and some potential new entrants to the capital markets and the league table for 2017.
  • We expect that private equity will continue to be the main source of new funding for asset deals and M&A, in particular involving the bigger ticket disposals by supermajors. We may also see private equity looking to list some of their earlier vehicles in 2017 – with some even entering the league table.

How we did it

The UK upstream independents league table has been compiled from the December 2016 London Stock Exchange (LSE) List of All Companies and applied the following selection criteria:

  • Sector: Oil & Gas Producers 
  • Sub-sector: Exploration & Production 
  • Country of incorporation: UK (GB, GG, IM and JE) 
  • Ordinary shares: Yes
  • Market capitalisation: £ value highest to lowest for top 25 companies

A direct comparison has been made between end December 2015 and end December 2016.

Exclusion: We excluded one company whose activities are not primarily focused on oil and gas exploration and production despite the above categorisation. The exclusion was based on principal activities and a review of the business sections as described in the company’s latest Annual Report and Accounts.


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