By Andrew Callus
LONDON, Aug 19 (Reuters) - Takeover action is on the horizonamong smaller and weaker London-listed oil companies becausethey are finding it harder to raise funds, while larger peersare having no such difficulty, according to consultancy Ernst &Young.
Its Oil and Gas Eye Index, which monitors the sector withinLondon's Alternative Investment Market (AIM), fell 12 percent inthe second quarter.
That lagged a broader AIM market down 5 percent andthe FTSE 350 Oil & Gas Producers' Index ofmainstream oil and gas stocks off by 2 percent, oil and gastransactions partner Jon Clark noted in the index report.
Second-quarter equity fundraisings among Oil and Gas EyeIndex stocks totalled 42.1 million pounds ($65.5 million), down76 percent on the first quarter and the lowest since the firstquarter of 2009.
In contrast, such fundraisings across AIM were up 21 percentfrom the first quarter.
"The lack of confidence evident in the decline of the indexhad a pronounced impact on overall market demand for the sectorand contributed to the very low levels of fundraising," Clarksaid in the report.
He said there was still a divergence in capitalavailability within the industry, with larger players findingsources of finance relatively plentiful, while smaller companieswere finding things increasingly tough.
"At the smaller end of the spectrum, those companies thatcan deliver and communicate exploration and commercial successwill crowd the others out. The remaining companies will becompelled to seek out alternative funding routes, which couldresult in further consolidations as the year progresses."
Seventy-nine percent of Oil and Gas Eye Index stocks fell inthe quarter, mostly because of poor drilling results, the reportsaid.
It picked out Wessex Exploration and NorthernPetroleum after their drilling disappointment in FrenchGuiana; New World Oil and Gas after a poor hydrocarbonshow in Belize; Kea Petroleum for its abandonment of adisappointing well in New Zealand, and Petroceltic International which failed to find worthwhile deposits off Bulgaria'scoast.
Reuters called the above named companies for reaction onMonday. Petroceltic's chief executive, Brian O'Cathain, agreedthat the sector was out of favour, but said his company was wellfunded.
"Fund managers have been turned off the sector for a whilenow, but it's all part of a cyclic process," he said.
"Smaller companies who have had a string of failures andhave little chance of success, of course they're going tostruggle. It puts them in a vulnerable position, but we're milesaway from all that."
The other four companies had no immediate comment.
0.6428 British pounds)
