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Energy Minnows Face New AIM Rules

Posted on: Friday, 17 March 2006, 06:00 CST

By John Bowker Deputy City Editor

EXPLORATION minnows planning to float on the stock market have been issued with strict guidelines on how to present the true potential of their reserves - a move intended to prevent investment disasters such as Edinburgh-based BowLeven.

The London Stock Exchange said firms must now produce an independently produced "Competent Person's Report" to assess the quality and quantity of what they hope to drill, with a clear definition of what is deemed to be competent. The rules will apply to any oil, gas or mining company wishing to float on the junior Alternative Investment Market.

Martin Graham, head of AIM, said: "This is a prudent step. It takes into account the sector specific challenges of mining, oil and gas groups, while maintaining AIM's core ethos as a market for dynamic, growing, firms."

He added that, should the trend of high oil and commodities prices continue, there would be no let-up in the number of fledgling companies seeking to cash in.

Industry insiders welcomed the news, unanimously agreeing that it would improve the quality of companies available to investors. AIM currently hosts a massive 232 oil, gas and mining stocks - about a sixth of the entire junior market.

Tim Heeley, an analyst at Panmure Gordon, said: "These guidelines are highly welcome. It may not get rid of it completely, but this should discourage the spivvy element of the market. Maybe one or two companies will think twice about listing immediately, and instead wait six to 12 months before they can get a more solid report."

BowLeven was the most recent of a string of high profile oil and gas exploration failures, including Wham Energy, Regal Petroleum and White Nile - the Sudan-based firm run by former England cricketer Phil Edmonds. All promised much, but delivered only dry wells, costing investors millions. BowLeven raised about GBP 85m before two high profile drilling failures off the coast of Cameroon devastated the share price. The firm is understood to have filed a Competent Person's Report when it floated in 2004, but more than one observer has claimed the firm was economical when describing the contents within it.

"The guidelines will give investors a bigger picture," said Heeley, "but the investor will still have to dig deep into the CPR to find the information."

Steve Jenkins, of floated oil and gas explorer Nautical Petroleum, said that if he was launching an IPO under the new rules he would have to give much more detail than before. "We just put 'proven and probable' reserves, but now there are three broad categories."

Investors poured over GBP 1 billion into small-cap oil and gas firms in 2005, up 50 per cent on the year before. And the figure - supplied by Ernst & Young - does not include mining stocks.

The guidelines will also affect brokers and advisers, as it states that AIM candidates should only use specialist companies.

Source: Scotsman, The

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