A recent survey conducted by researchers at Company Watch found that the falling price for Brent crude oil has had a damning effect on small oil and gas firms in the UK listed on the AIM stock market.
Of the 104 companies surveyed, 90% were reported to be making losses, and 42% were in the Company Watch designated “warning area” as they struggle to cope with plummeting oil prices.
The market value of the 104 companies had collectively fallen by 40% over the past year. They currently have a combined level of debt to the tune of £2 billion.
Prices per barrel for Brent crude have fallen by over 70% over the last year and a half, currently sitting at just below $33, and the impact has been felt across the oil industry, but particularly among smaller firms who don’t have the contingency set ups to be able to cope.
Larger firms like BP are also feeling the pressure of falling prices, but given their large existing balance sheets, are coping somewhat better than the smaller companies.
Ewan Mitchell of Company Watch said that “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 AIM companies.”
The 104 companies surveyed by Company Watch are all listed in London, but pressures have also been mounting on North Sea oil producers based elsewhere.
Canadian listed Iona Energy, Danish/Icelandic listed Atlantic Petroleum and Swedish listed PA Resources all reported troubles following from low oil prices.
PA Resources announced its liquidation last year, and Iona have now been forced to enter into insolvency proceedings following loss of investment and the falling through of the sale of one of its fields near the Shetland islands.
Atlantic Petroleum is still operating, but their future is uncertain after it was revealed that they had missed repayments on a debt last December.
This weekend just gone saw prices drop to fresh, 11 year lows, with US West Texas Intermediate (WTI) dropping by 48 cents to now reach $32.68, while Brent crude dropped by 63 cents, but still remains slightly above WTI at $32.92 per barrel.
Against this backdrop, the general continuing economic turmoil in China is highlighted, since they are the world’s largest importer of oil.
Last week, emergency measures caused the Chinese stock market to halt trading after shares dropped by 7% across the board. The ‘circuit-breakers’ that come into play when stocks drop too sharply are intended to stop wide-scale panic selling of shares.
This global economic instability, highlighted in countries like China, is thought to continue, and many are predicting that oil prices will continue to follow their current trend and are likely to fall to below $20 a barrel before they eventually start to head back upwards again.