Gas and Oil sectors are ripe for consolidation

Sunday, 5th July 2009 21:27 - by GedW

Most, if not all, of the Gas and Oil sector’s tiddlers are potential takeover targets, if historic indicators are anything to go by. I think the message is that consolidation is now inevitable, which is borne out by (and explains the reason why) over 70% of the 100 or so Alternative Investment Market (AIM) companies I have looked at have less than £5M to spend on planned drilling and development projects. This is due to many of the companies trading well below their past share price highs and just above their all-time lows, making it very hard to convince a skeptical ‘City’ to advance fresh funds. With the funding options for recovery shrinking, many good/solid tiddler Oil and Gas companies will find themselves taken over by better positioned rivals. The combination of a lack of investment funding, weak cash balances, and weakened share price performance are the key ingredients for a company to become a target of better positioned rivals wanting to seize quality resource assets ‘on the cheap’. It is obvious to me that majors, large juniors and overseas investors see struggling AIM Oil and Gas tiddlers as opportunities to be poached. I have mentioned a few of my favourites elsewhere on lse which are almost certain to be on a consolidators list, so I will not re-iterate them here, but they are definitely out there. Good hunting!