Scottish Oil Companies Soar By GBP 41m a Day

By Hamish Rutherford

SCOTLAND’s five largest oil explorers together have been increasing in value by some GBP 41 million a day over the past two months as the market comes to terms with the prospect that crude oil prices may not fall back below dollars 100 a barrel.

Cairn Energy, Dana Petroleum, Venture Production, Melrose Resources and Aim-listed Bowleven have notched up increases of between 13.3 per cent and 77.8 per cent since Easter, driven by a mixture of drilling news and, more significantly, a rerating of the sector.

Collectively, in excess of GBP 2 billion has been added to their market values, according to research by The Scotsman.

After breaching dollars 100 a barrel for the first time on 2 January, crude oil prices have continued to break records almost weekly. The latest high was hit on Thursday when crude oil in New York and London traded above dollars 135 a barrel.

Initially the rise to three figures was seen as temporary, with oil executives claiming they saw no reason for the record levels. But a string of influential research houses have now publicly predicted those sky-high levels will continue.

Earlier this month, Wall Street investment bank Goldman Sachs, whose oil and gas team is widely considered the most authoritative in the sector, warned there was a new reality for crude oil. It argued that prices reaching dollars 150-200 a barrel over the next 12-24 months appeared “increasingly likely”.

More have followed. Last week, Credit Suisse increased its assumptions on the price of oil over the next two years to more than dollars 100 barrel.

On Friday, a poll of 33 analysts conducted by Reuters showed the market was expecting oil to average dollars 107 a barrel for the rest of this year.

Crude prices are not the only driver for some of Scotland’s producers, though.

Aberdeen-based Dana Petroleum, which has registered the largest increase in value in percentage terms, up 77.8 per cent, has been driven in part by two significant finds in the North Sea and deal- making in Egypt.

Cairn Energy, which was transformed by huge finds in India on assets overlooked by the oil majors, has been substantially “de- risked” following key approvals to develop a pipeline to transport its crude reserves to refineries. Cairn has increased in value by 35.8 per cent – or almost GBP 1.2bn – since Easter.

Bowleven, which is targeting west Africa, was boosted by a GBP 39m share placement in late March to fund drilling in Cameroon. But despite never extracting a single barrel of oil, the company now has a market cap of GBP 364m, more than those of John Menzies and Robert Wiseman Dairies.

Venture Production was driven down earlier this year as analysts trimmed forecasts of how much the Aberdeen-based company would produce in the next two years. But since Easter, its shares are up just under 54 per cent, despite a lack of news on its drilling programme.

Last week, some sector analysts claimed the recent rises would continue as the calculations used by analysts of the oil and gas equities sector moved into line with the “futures curve” used by oil traders.

Robin Batchelor, manager of BlackRock’s BGF World Energy fund, claims the energy sector still trades at a discount to the wider market, but would show a “strong rerating” as oil price assumptions are changed.

He said: “Analysts continue to factor a long-term oil price of dollars 70-80 into their valuations, whereas the oil futures curve is above dollars 125 through 2015.”

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