Oil firms' debt mountain grows

Major oil price volatility, collapsing valuations and a growing mountain of debt left 80% of Britain’s oil and gas companies floundering in the red at the end of 2015, warns Begbies Traynor, a UK-based independent insolvency firm.

According to Begbies Traynor’s Red Flag Alert research for Q4 2015, which analysed the financial health of 80 UK oil and gas companies trading on AIM, 64 (80%) had losses at the end of 2015 – a 10% rise compared to Q4 2014 (56 companies). Of the 103 oil and gas companies listed on AIM, 80 are UK-domiciled companies which can be monitored by the Red Flag research.

Meanwhile, at the end of 2015, 58% UK oil and gas companies were suffering from ‘Significant’ financial distress (Q4 2015: 46 companies) – an increase of five percent compared to the final quarter of 2014 (Q4 2014: 44 companies).

The data also shows that, over the past year, AIM-traded oil and gas companies have been taking on worrying levels of debt. At the end of Q4 2015, the 80 oil and gas companies monitored had nearly £1 billion (£978 million) of debt on their balance sheets -  a 653% increase compared to the final quarter of 2014 (£129.9 million). 

According to AIM statistics, the market capitalization of oil and gas companies in January 2015 was £5.1 billion but fell to 27% to £3.7 billion in December 2015. 

Julie Palmer, Partner at Begbies Traynor comments: “The extraordinary decline in oil prices over the last 18 months has clearly taken its toll on the UK’s AIM traded oil and gas companies. These businesses, many of which have already taken drastic steps to cut costs as a result of spiraling debts, are in a weak position to absorb any further decreases in the price of crude given over half find themselves under significant financial distress. 

“The situation looks set to deteriorate further over the coming months. The lifting of sanctions on Iran means Iranian oil will return to the market, threatening a further slide in oil prices. While the chronic oversupply of crude will continue to challenge the global oil industry, it is the smaller oil and gas companies, such as those trading on AIM, which are the most vulnerable and are being squeezed most.”