Also, valuations used to be supported by merger and acquisition activity in the sector. But since Cove, deals have been few and far between. “Potential acquirers are much more choosy than they were in the past,” says Mark Wilson of Jefferies. US oil and gas explorers impress
While international exploration and production companies have been underperforming in recent years, some of their US counterparts have been impressive, writes Ed Crooks. There have been good returns for some investors in the US E&P sector, but they had to be in the right companies at the right time. Read more Big Oil, under pressure from shareholders to show more capital discipline, has pulled back from large corporate deals. Also, E & Ps hoping to sell themselves or their assets are facing a much more crowded market, as the majors pursue multibillion-dollar asset disposal programmes. Witness the difficulties Tullow has experienced in trying to sell down its interest in TEN, a vast oil project off the coast of Ghana. The sector has also suffered from the US shale revolution. American investors that used to back international E & Ps have switched into shale oil producers such as EOG and Pioneer Natural Resources that offer more secure returns. “The attraction of the onshore US is that you put your [capital expenditure] in and you get production out within 12 months,” says Mr Wilson. London-listed oil stocks, in contrast, tend to carry more geopolitical and exploration risk. The fall in the E & Ps’ stock price also reflects a big change in the way their assets are perceived by the market. In years past, they gained credit for oil they had discovered but had not yet started to produce, as well as for their exploration potential. Now, investors only seem to ascribe value to assets that are actually producing oil and generating cash. Beneficiaries include Genel Energy, run by Tony Hayward, the former BP chief executive, which extracts oil from two huge fields in Iraqi Kurdistan. The problem for the smaller E&Ps is that they are so different from other stocks. “Elsewhere in the equity market you have hard, rigid criteria like dividend yield, and physical asset value,” says Bradley Mitchell, a senior fund manager at Royal London Asset Management. “With the E&Ps there’s more hope and anticipation, especially when their production is far out in the future.” And that hope has been dashed, he says, by years of poor exploration results. Some say it was inevitable that the bubble would burst: companies’ valuations were in some cases hugely inflated, based on expectations that were not met. “E&Ps have been over-promising for a while now,” says Petroceltic’s Brian O’Cathain. Tony Durrant, the newly appointed chief executive of London-listed Premier Oil, agrees. He accepts that Premier, along with many of its peers, are on a “yellow card from the inve
July 2, 2014 6:32 pm Oil explorers hit rock bottom By Guy ChazanAuthor alerts
The $250m price tag attached to the sale of a 50 per cent stake in a key project should have given a big boost to the share price of Africa-focused oil explorer Bowleven last week. It failed to. Analysts said the farm-down of the oil and gasfield off the coast of Cameroon was worth about 68p a share to Bowleven. Yet a day later, its shares were trading at just 40.5p. Its market value is now lower than the cash it earned on the Cameroon deal. “Something is not working here,” says a person close to the company. “The market is dysfunctional.” International exploration and production companies – or E&Ps – were once stock market darlings. A string of spectacular discoveries by Tullow Oil in Africa, Cairn Energy in India and DNO in Iraqi Kurdistan grabbed headlines and investors’ attention. But E&Ps have lost their lustre. That is partly because they seem to have lost the knack of discovering oil. “It would be great if someone actually found something with the drill bit to remind people of the reasons for holding E&P stocks,” says Brian O’Cathain, chief executive of Petroceltic International, an oil explorer quoted on Aim, London’s junior market. “Discoveries have been too sparse.” A trading update from Tullow Oil illustrated the point on Wednesday. A pre-tax exploration write-off of $415m was accompanied by a blip in interim production figures. Its share price has almost halved in the past two years. It is all a far cry from 2012, when small-cap Cove Energy, whose main asset was a tiny stake in a gasfield off the coast of Mozambique, found itself in the middle of a bidding war between Thailand’s national oil company PTTEP and Royal Dutch Shell. PTTEP won out, paying $1.9bn for the company. The post-Cove hangover has been long – and chilling. International E&P share prices are down 21.3 per cent since the start of 2012, while the S&P 500 is up 55.8 per cent. Bowleven’s performance is typical. Scepticism over its ability to develop the Cameroon asset has driven its shares down 90 per cent from their 2011 peak of 394p to 37.75p today. With a few exceptions, “the whole sector is trading below core net asset value”, says Brendan Walsh of BMO Capital Markets. Disappointing exploration results are just part of the problem. The E & Ps’ fortunes rise and fall with the oil price, and crude has been more or less stable over the past two years. Also, valuations used to be supported by merger and a
Yeah must say it does appear they could have been rolled. Thought crossed my mind it might be a ruse to flush out a bidder but that's pretty high stakes poker by the bod. If it has been orchestrated by the government GSA and fertilizer plant will happen for sure.
That's what makes me suspicious that they might have been forced into this deal (not that familiar with Cameroon but wonder how much the Russians are investing in infrastructure there for instance - have seen deals elsewhere in the world where they get a share of the natural resources in return!). Especially given the rumours in the past of takeover offers, plus what DGO offered (I know it was withdrawn though). Just seems an awfully long wait to end in what i consider not to exactly be the greatest deal (even RKH got a lot more and there is no infrastructure being built there at the moment and PMO are hardly flush with cash either!).
Just seemed to me that they had sold out very cheaply and having waited all this time as well to do so - surely if they were going to do a deal at that sort of price per barrel it shouldn't have dragged on as long as it did. I also suspect that the Cameroon government has been very much involved in this deal (possibly as part of the EEAA for instance) and if that was the case then too much interference from the government is never good news in this sort of situation! I've actually added some more today, around 38.5p again, as it seems to have found support here for now.
Yeah, I watched them do it too. Thinking about opening the wallet in the morning again now I'm convinced more than ever something's going on here and that coupled with coverage we are getting plus o and g revival gotta be good
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