Article

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

UK upstream independents league table 2017 and a five-year review special

The 2017 UK upstream independents league table reflects the impact of higher oil prices and improved market sentiment during the year. These factors contributed to an increase in the total market capitalisation of the top 25 producers by 11 per cent between the end of 2016 and the end of 2017. However, market conditions have changed considerably from five years ago, when the market capitalisation of the top 25 producers was 56 per cent higher.

Upstream independents league table 2017

Key extracts

  • Oil prices hovered between $50 and $60 per barrel for most of 2017 and moved above $60/bbl from October. The extension of the agreement to cut oil supply by OPEC and other producers, the falling crude stockpiles and geopolitical tensions in oil producing countries contributed to the strengthening of oil prices towards the end of 2017.
  • The total market capitalisation of the top 25 companies increased 11 per cent from £10.5 billion at the end of 2016 to £11.6 billion at the end of 2017.
  • The league table saw a new initial public offering in 2017: Diversified Gas & Oil was the first company to join the top 25 through IPO since 2015.
  • Tullow Oil continued to lead the league table, while Cairn Energy has been in second place for the past three years.

Who entered the league table in 2017?

Five independents entered the league table in the year:

  • Phoenix Global Resources is the renamed Andes Energia, previously listed on AIM, which, following its reverse takeover of Trefoil Holdings, was re-admitted to AIM and entered the league table in third position
  • Genel Energy entered the top 25 in 13th place. The company has been included in the league table for the first time after its reclassification in the source data from a financial services company to an oil and gas company
  • Serica Energy entered the league table for the first time following the acquisition of some of BP’s North Sea assets, which increased the company’s market capitalisation nearly six-fold between 2016 and 2017 and catapulted it to 15th position 
  • Diversified Gas & Oil entered the league table in 20th place, following its IPO onto AIM in February 2017 
  • IGas Energy re-entered the league table in 21st position after completing a capital restructuring and aided by improving conditions for its conventional onshore activities during the year.

Who left the league table in 2017?

While no companies left the top 25 as a result of mergers and acquisitions, five independents dropped out of the league table as the market capitalisation of other companies was greater at the end of the year:

  • The Parkmead Group
  • Gulfsands Petroleum 
  • JKX Oil & Gas 
  • Volga Gas 
  • Victoria Oil & Gas

Where was the funding coming from?

  • The majority of independents maintained strict capital discipline and focus on their core producing assets. A number of independents began to benefit from cost management and operational efficiency efforts, with higher oil prices starting to ease pressure on balance sheets towards the end of 2017.
  • Banks remained open to supporting the oil industry in refinancing or renegotiating terms and conditions of existing facilities, for example Premier completed its refinancing during the year.
  • The equity market continued to support existing investments, which were focused on proven projects and also supported one new oil and gas company IPO in 2017. 
  • Companies continued to explore more creative financing solutions – including seeking funding from major oilfield services companies – to support expansion. There were also a number of farm-out agreements during the year to secure funds for new developments.

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

  • Investment appetite grew in the UK Continental Shelf as cost management and operational efficiency measures started to take effect during the year. A number of listed independents participated in this – such as Serica Energy and EnQuest – by acquiring mature assets from supermajors. With little new exploration, drilling and appraisal activity in the basin, similar deals are likely to dominate the UKCS M&A market in the near term.
  • 2017 also saw acquisitions further afield by independents, funded by a combination of refinancing, debt and shareholder support. 
  • Private investors continued to invest in a number of unlisted independents, which may strengthen the future IPO pipeline if these companies decide to go public. Alternatively, some of this activity could lead to transformational acquisitions, propelling acquiring independents up the league table in coming years.

Outlook

  • Oil and gas prices are broadly expected to remain ‘stable for longer’ due to a number of factors: improving global macroeconomic conditions driving stronger demand for oil and gas; extending production caps, which have been largely respected by OPEC members and Russia with the latter signaling its intention to support them in the future; and geopolitical tensions in a number of producer countries, which will be challenging to diffuse. 
  • Sentiment among independents is expected to continue to improve, which, combined with cost control and its positive impact on balance sheets, should continue to support appetite for growth. 
  • Production commenced at a number of new fields in the UKCS in 2017. Cash flows from these projects should allow such producers to consider reinvestment, once initial cash flows have improved the balance sheets used to finance the developments.

A five-year reflection

Independents league table constituents in 2012 vs 2017

The league table has not changed drastically over the past five years:

  • over half of companies – 14 out of 25 – that formed the 2012 independents league table remained part of the 2017 top 25 list 
  • three companies, Nostrum Oil & Gas, Hurricane Energy and Diversified Gas & Oil entered the league table through IPOs
  • the remaining eight companies joined the top 25 because their market capitalisation increased either through organic growth or acquisition, or they were reclassified in the source data
  • four companies that were in the league table no longer exist: Afren went into administration, Heritage Oil was acquired by Energy Investments Global, Salamander Energy was acquired by Ophir Energy and Valiant Petroleum was acquired by Ithaca Energy.

Market capitalisation of companies in 2012 vs 2017

Total independents league table top 25 companies market cap vs Brent oil price on last trading day of the year

Sources: London Stock Exchange/FTSE Russell and EIA Europe Brent Spot Price FOB

  • The total market capitalisation of the top 25 companies fell 56 per cent from £26.5 billion at the end of 2012 to £11.6 billion at the end of 2017.
  • Companies at the top of the league table accounted for most of the drop in market capitalisation: The total market capitalisation of the top 10 companies fell 62 per cent from £23.3 billion in 2012 to £8.9 billion in 2017. 
  • The decline in total market capitalisation of the top 25 companies follows a trend similar to oil price fluctuations over the same period. The oil price declined from $110.8/b at the end of 2012 to $66.73/b at the end of 2017, a drop of 40 per cent.

How we did it

The UK upstream independents league table has been compiled from the 31 December 2017 list of companies whose shares have been admitted to trading on the London Stock Exchange and applied the following selection criteria:

  • ICB* Industry: Oil & Gas (1)
  • ICB Supersector: Oil & Gas (500)
  • ICB Sector: Oil & Gas Producers (530)
  • ICB Subsector: Exploration & Production (533)
  • Country of incorporation: United Kingdom, Guernsey, Jersey and Isle of Man 
  • Ordinary shares: Yes
  • Market capitalisation: £ highest to lowest value for top 25 companies

A direct comparison has been made between end December 2016 and end December 2017.

*Industry Classification Benchmark (ICB®) is a globally recognised standard for categorising companies and securities, operated and managed by FTSE Russell. FTSE Russell is owned by the London Stock Exchange Group.

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.

If you’d like to discuss the league table with one of our industry specialists, please get in touch via the contacts below.

Did you find this useful?