Rockhopper & the fate of small cap Oilers

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AIM listed Rockhopper has sold 60% of its Falklands Oil field to Premier Oil, the FTSE 100 giant. 700 million barrels of oil and counting is a lot of resources to have. Small wonder the Argentinian Govt has been sabre rattling in recent months of the territorial ownership.

Whilst one could have made a lot of money buying Rockhopper at its 2009 low of 14p, you would have to have timed it impeccably and it has been, pardon the pun, a rocky ride. 

I doubt investors who buy into these shares really expect many of the companies to do a Tullow Oil or a Cairn Energy and turn into FTSE 100 behemoths from penny shares but what looks frustrating is that the exceptionally weak small cap equity markets are serving up some great treats for the likes of Premier Oil at the moment. 

Depressed prices due to a lack of access to capital for development means the small cap explorers are as hamstrung now as they were in 2008/9. To move projects on it is either eye-watering dilution for current holders (including management), a partial sale of assets at firesale prices or treading water, waiting for markets to revive and hoping current funds can eke out the time. Even n the latter case, the funding is often from a death-spiral equity finance arrangement that is again very dilutive with shares offered for cash on poor terms. 

Unsurprisingly then, the share prices are being hammered and the companies valued at far below true value. This is good for predators though like Premier who have the cash flow to snap up explorers at cheap valuations. Perhaps the better strategy is to buy the likes of Premier Oil currently. Alternatively if the markets do recover, there are going to be some sharp spikes on AIM Oil and Gas companies.

CityUnslicker


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