Shareholders in most UK onshore oil and gas companies could be forgiven for looking forward to the end of 2019.
The year saw share price falls averaging a third across eight companies reviewed by DrillOrDrop.
Angus Energy, dubbed “Anguish Energy” by long-suffering shareholders, saw its share price collapse by 93% in 2019.
Only two companies in our review posted share price gains over the year: Union Jack Oil up 33% and Reabold Resources up 5%.
Both companies have an interest in the West Newton site in East Yorkshire, described by Reabold as “potentially the largest hydrocarbon discovery onshore in the UK since 1973″.
The year continued the previous trend of lacklustre share performance in the onshore industry.
Five of the eight companies we reviewed hit five-year lows in November 2019. Only one company, Union Jack Oil, saw its share price achieve a five-year high in 2019.
The share price clearly matters to investors.
But it also matters to the industry.
For stock market-listed exploration companies it is the main way to raise money to fund new projects.
If the share price is disappointing, investors may be deterred from buying new shares.
What went wrong?
Each company has its own story, but there are some common themes.
Oil exploration in southern England has been more difficult than many investors had expected.
Some wells have not performed to expectations, depriving companies of the income they needed for future operations. This forced them to issue more shares, which in turn depressed the share price.
Shares in AJ Lucas, the largest investor in Cuadrilla, reached a 2019 high point on 22nd August. This coincided with fracking on the second well at Cuadrilla’s Preston New Road near Blackpool. But by the year end, after a series of earth tremors and a fracking moratorium announced by the government, the shares were down 67%.
The wider gas exploration industry in the UK faced another threat in 2019 as wholesale gas prices halved, finishing the year at 29.8 pence per therm.
This is currently significantly below the government’s central price assumption for 2020 of 48 pence per therm.
The fall in price has been driven by various factors, including a slow-down in China and increasing competition between US shale gas exporters and Arab countries, such as Abu Dhabi.
In 2017, Cuadrilla’s director Matt Lambert was reported as saying shale gas could be viable for his company with prices of 40 pence per therm. This raises questions over whether fracking can be economic in the UK at present prices.
Low gas prices could also cause problems for Angus Energy, as it seeks to reinstate the flow of gas at Saltfleetby in Lincolnshire. The company’s cash flow projections, which assume a gas price of 50.3 pence per therm, could be significantly affected if the present low prices continue.