Deloitte, the business advisory firm, has produced its first ranking of UK upstream independent oil companies, by tracking the leading 25 by market capitalisation. The inaugural ranking reveals the dominance of two players, Tullow Oil and Cairn Energy.
Graham Hollis, partner within the energy, infrastructure and utilities group at Deloitte in Aberdeen said, ‘The UK upstream independent sector is vital to the ongoing success of the UK based oil and gas industry. Participants in this sector play a key role in the development of reserves on not only the UK Continental Shelf (UKCS) but increasingly overseas, resulting in a significant contribution to both industry and the UK economy.
In order, the top five companies include Tullow Oil, Cairn Energy, Premier Oil, Heritage Oil and Dana Petroleum.
Tullow Oil and Cairn Energy
Tullow Oil’s strong position is reflected in the fact that it represents 41% of the total market capitalisation of the 25 leading UK upstream oil companies.
There is currently clear water between Tullow and its nearest competitor Cairn Energy in terms of market capitalisation and the two together are worth 60% of the entire ranking.
Movements during 2009
There were significant movements in the positions of the remaining 23 companies during the year, due to strategic acquisitions, distressed asset sales and new entrants to the AIM and main markets. Another factor was the impact on share prices from newsflow.
Ian Sperling-Tyler, Co-lead of Oil & Gas Corporate Finance at Deloitte commented, ‘The main legacy of the 2009 storm, with oil price volatility, uncertainty, and an indiscriminate collapse in equity values showed the need for companies to be more self-sufficient and less reliant on investors funding high risk developments, often with minimal diligence and track record. Investors have nursed large losses in this sector and will be highly selective of who they back going forward.’
Other report highlights
- Companies with acreage in the Falkland Basin all moved up the rankings during 2009. Two of the biggest gains, Borders & Southern (new entrant 15, up from 32) and Desire Petroleum (moved up 10 places to 14), reflect interest in potential resources that could be commercially viable and progress towards commencement of further exploration and appraisal drilling.
- Rockhopper Exploration, another company with assets in the Falkland Basin gained 23 places to sit just outside the top 25. Further work on the prospectivity of Shell’s 1998 drilling programme, through extensive 3D seismic evaluations has led to new found optimism in the region, and has resulted in the relative buoyancy of Rockhopper’s share price.
- Kurdistan could prove a magnet for companies and investors in the years to come. Companies with exposure to Kurdistan acreage received a boost to value as some of the legal and licence issues approached resolution.
- Further to its African success, Heritage has realised value in this region following the discovery and appraisal of the Miran West field with promising flowrates.
National oil companies active during 2009
- The national oil companies (NOCs) were rampant during 2009 buying assets in Africa, Asia and the Middle East. The NOCs also acquired listed independents, taking two companies out of the rankings. Imperial Energy was an early exit following its acquisition by Oil and Natural Gas Corp. (ONGC) followed by the acquisition of Emerald Energy by the Chinese NOC, Sinochem. The NOCs’ appetite for reserves and their willingness to pay full premiums for assets appears undiminished as we move into 2010.
- Other M&A activity included the acquisition of the FSU focused explorer Arawak Energy by Vitol in the second half of the year, Premier Oil’s purchase of Oilexco’s North sea interests in March (helping Premier move up to 3rd place in the rankings, Dana’s acquisition of Bow Valley, and the conclusion of Centrica’s courting of Venture Production underscored by the rationale of utility companies bolstering their own reserve base – a trend that looks set to continue in the near term.