Cautious improvement for oil and gas stocks

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The Independent Online

Steadily rising commodity prices and improving economic confidence are buoying oil and gas stocks hammered by last autumn’s unprecedented downturn.

Ernst & Young’s index of Aim-listed oil and gas companies saw a second consecutive period of growth in the second quarter, rising by 24 per cent, the consultant will say today. But although the index is up by 57 per cent since the start of the year, it is still a whopping 58 per cent down on the same period of 2008.

Higher oil prices have played a key role, with Brent crude costing 84 per cent more by the end of June than at the beginning of the year. But the easing of last year’s credit crunch has also helped. Secondary fundraising in the oil and gas sector reached £218m in the three months to June, the highest quarterly amount since the last quarter of 2007 and significantly higher than the £25m raised from January to March this year. But optimism for the third quarter remains guarded, and there is considerable uncertainty about the shape and timing of economic recovery.

Alec Carstairs, a partner at Ernst & Young, said: "The steady but cautious recovery in the performance of the oil and gas index in the last six months is in part supported by higher oil prices but working capital constraints and access to affordable financing cannot be ignored. Future prospects for oil prices stabilising at higher levels depend on the speed and strength of global economic recovery and investor confidence may not return to every company in the sector."

But although there are signs of easing in the availability of capital, there were still only 236 upstream deals in the sector in the first six months of the year, not many more than half of the 456 in the same period of 2008.

Last year was particularly tough for smaller players in the oil and gas industry. The Ernst & Young index ended the year down by 60 per cent and in the last quarter fund-raising all but ground to a halt.