A company awarded 11 licences for oil and gas exploration by the government last year has been on a financial health warning list for four years, according to analysis published yesterday.
The study by Company Watch also revealed that another firm awarded two new licences received almost the lowest possible score for financial health and had also been on the warning list since 2012. A third, which received one licence, was just outside the warning zone.
Company Watch reviewed oil and gas companies listed on AIM, the London Stock Exchange’s international market for smaller growing companies.
Each company received an H-Score, which Company Watch described as “an immediate and reliable evaluation of any company’s fundamental financial health”. A score of 25 or under out of 100 put the company in a “Warning Area”. A press release from Company Watch said:
“Nine out of 10 companies that fail have been identified by the H-Score in advance”.
IGas, which was one of the most successful companies in the 14th licensing round confirmed last month, got an H-Score of 13 out of a possible 100, well within the Warning Area.
Company Watch said IGas had been in the Warning Area since 2012.
The Oil and Gas Authority, which handled the 14th licensing round for the Department of Energy and Climate change, said it screened applicants for financial viability. Link Just before the licences were confirmed, IGas declared a loss of £19.3m for the six months to the end of September 2015. This compared with a loss of £3.8m for the same period in the previous year.
Despite this, the OGA confirmed in December 2015 that IGas had been granted six licences for conventional oil and gas exploration and five for shale gas. The company was the second most successful operator in the 14th licence round after INEOS.
The 11 IGas licences, which cover 17 blocks, were in Yorkshire, Lincolnshire, Sussex and Hampshire. The company said the licences increased its acreage by about 25% across key UK shale basins. It now has about 876,000 acres under licence and operates 100 sites in north-west and southern England, the east midlands and Scotland.
In a press release, IGas said it had committed to carrying out £3m of work across the new licences in the first two years under a work programme agreed with the OGA.
We asked IGas to comment on the Company Watch findings but it declined.
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Infrastrata, which received one licence under the 14th round, got an H-Score of 1 out of a possible 100 in the Company Watch analysis. The lowest possible score is zero.
Company Watch said Infrastrata had also been in the Warning Area since 2012.
The company was formerly known as Portland Gas plc and demerged from Egdon Resources in 2008, when it was first listed on AIM.
We invited Infrastrata to comment. Its spokesperson said he was very busy but would try to get back to us. We’ll update this post if he does.
Europa Oil & Gas
Company Watch rated Europa Oil & Gas at 26, just outside the Warning Area. It received a licence to drill around Goole and the lower Derwent valley under the 14th round
Europa was granted planning permission last year to drill an exploratory oil well in the Surrey Hills Area of Outstanding Natural Beauty, south of Dorking. The application had been the subject of two planning inquiries and two court cases.
During the most recent planning inquiry, an opponent of the scheme described Europa as a “tiny, penny-share company”. The company’s representatives denied this.
Other company scores
Egdon Resources, which received four licences in the 14th round in the east midlands and north-east England, had a score of 60. UK Oil & Gas Investments (UKOG), which has an interest in the Horse Hill well near Gatwick and is a partner in a 14th round licence, scored 55. Solo Oil, a partner of UKOG at Horse Hill, scored 47.
AIM-listed onshore oil and gas companies with their H-Score
Jersey Oil & Gas 98
Egdon Resources 60
UK Oil & Gas Investments plc 55
Solo Oil 47
Magnolia Petroleum Plc 36
Eland Oil & Gas 34
Europa Oil & Gas 26
IGas Energy 13
Union Jack Oil plc 7497220 89
More on the H-Score
Company Watch said it creates the H-Score from profit, asset and funding management. It added:
“The H-Score® is derived from a company’s published financial results and quantifies how closely the accounts resemble those of companies which subsequently failed. Displayed graphically over several years, it is a ranking of all companies on a scale of 0 (weakest) to 100 (strongest).
“Companies with an H-Score® of 25 or less are placed in the Warning Area. Not all companies in the Warning Area will fail, but the stark warning is that the H-Scores of the vast majority of companies that subsequently failed were less than 25 prior to failure.”
“For each company, the relative importance of each measure is weighted according to the structure of the Balance Sheet, which in many cases is characteristic of an industry or business type.”
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