11 January 2016

More tough times ahead for the junior oil and gas companies,

warns Company Watch

With oil prices testing record ten year lows and likely to remain low for the foreseeable

future corporate health monitors Company Watch has repeated last year’s examination of

the health of the finances of the UK’s smaller publicly quoted oil and gas companies.

Of the approximately one hundred oil and gas companies listed on the London Stock

Exchange’s AIM, two out of five (42%) are in its Warning Area, with H-Scores of 25 or lower

and where they are approximately 50 times more likely to suffer financial distress than a

typical company outside of it. This is an increase on 2014, where around a third of AIM oil

and gas companies were in the Warning Area.

While 90% of the smaller cap oil and gas companies are still loss making (same as 2014),

rounds of cost cutting in 2015 reduced total annualised losses from around £2 billion to £800

million.

However, the fall in the price of Brent Crude in 2015 from over $70 a barrel in January to

under $40 at the year’s end, helped to reduce the combined annualised sales of AIM

companies by around 85%, falling from £14 billion to £2 billion in 2015.

Despite vigorous cost cutting, total debt has remained stubbornly the same as 2014 at

around £2 billion.

Around a third of the AIM quoted oil and gas companies are still not producing any revenues

at all, which is no improvement on 2014.

Over the course of last year, there was a substantial fall in shareholder value in AIM oil and

gas stocks, down from a combined market capitalisation of nearly £5 billion to around £3

billion, a drop of nearly 40%.

During 2015, the smaller quoted oil and gas sector shrank by around 10%, with 9 stocks

leaving AIM including TXO, Max Petroleum and Jubilant Energy.

In terms of AIM IPOs in the sector these fell from 4 in 2014 to just one in 2015, while money

raising in the form of further issues fell from 259 in 2014 to 180 from January to November

2015.

The contrast with the financial health of the larger main listed oil and gas companies

couldn’t be starker.

The balance sheets for main listed oil and gas companies are still very strong, producing

good H-Scores for almost all, with only three in Company Watch’s Warning Area: Petrofac

(H-Score of 10), Premier Oil (H-Score of 19) and Cairn Energy (H-Score of 25).

However, the fall in the oil price naturally affected sales, with annualised turnover from the

large oil and gas companies falling from £530 billion to £360 billion in 2015, but total debt

rising from £85 billion to £95 billion despite costs being slashed from £512 billion to £362

billion.

Ewan Mitchell, Head of Analytics at Company Watch, said:

“Sadly for investors the low oil price has taken its toll on the AIM quoted oil and gas

companies with around 10 per cent leaving the market and nearly a 40% drop in combined

market capitalisations.”

“The outlook for the whole quoted oil and gas sector in 2016 is harder to call. It is clear that

Saudi Arabia isn’t going to cut its output which has kept oil prices low for the time being, but

its very public fall out with Iran is going to introduce a whole new level of volatility to the

market, which could see prices swing wildly until the picture settles.”

“Smaller oil and gas companies on AIM will remain under severe pressure because

fundraising in this environment will be testing, and many will have already cut costs to the

bone last year with little room for more this year. We expect 2016 to be challenging for the

AIM companies.”

Further information, please contact:

Ewan Mitchell Head of Analytics, Company Watch Tel: 020 7043 3300 www.companywatch.net Twitter: @Company_Watch

Neil Boom MD, Gresham PR Ltd. Tel: +44 (0) 7866 805 108 www.greshampr.co.uk

About Company Watch Company Watch rates and predicts the financial health of companies worldwide. It provides

in-depth analysis of companies by applying its unique H-Score® methodology to published

financial data. Since its launch in 1998, the H-Score® has identified the vast majority of

corporate insolvencies or restructurings in advance. The Company Watch service is used by

major international blue chip corporations, banks, fund managers, insurance companies,

public sector bodies, accountancy firms, restructuring practices and other professional

organisations throughout the world.