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E&Y Says AIM Oil Firms Are Exposed to Political Risks

Posted on: Monday, 8 August 2005, 09:01 CDT

AIM-LISTED oil companies covered by Oil & Gas EYe, the Ernst & Young oil index, are increasingly vulnerable to market fluctuations and local political upheaval despite their recent run of successes.

According to E&Y, the 20 companies currently on the index have outperformed the FTSE Index by 41 per cent since January, seen their share values leap by 74 per cent and have driven the value of the oil and gas sector on AIM to GBP 6.5 billion - 16 per cent of the entire AIM index.

However, nine of the companies that make up the index are focused purely on exploration - 38 per cent of the total value of Oil & Gas EYe, at GBP 2bn.

And Alec Carstairs, oil and gas partner at E&Y, said yesterday: "While the potential upside may be large, the risks are high with many companies exposed to political and economic risk. Around half of all companies in the Index are weighted towards operations in Africa.

"While many companies are looking at new territories for exploration and investment to diversify their operations, 60 per cent of the oil & gas companies on Oil & Gas EYe have taken an 'all eggs in one basket' approach, operating in a single geographic territory. This means the performance of the index is particularly susceptible to a single piece of corporate activity."

Recent strength has largely been driven by sustained high commodity prices, E&Y said.

Source: Scotsman, The

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