The harsh reality is during times of market volatility, the old adage “survival of the fittest,” applies to all companies, but especially junior/mid-cap oil and gas companies.
Unpredictable equity and commodity markets, and lower investor confidence in particular, can make it difficult for junior exploration and production companies to raise capital on the markets, particularly if the company is heavily exposed to development costs and has little to no production revenue.
Although, there are still ideal opportunities available for the junior/mid-caps with good acreage in the underexplored jurisdictions, as long as they can prove-up a play and successfully farm-out land to a partner to help share costs (or to have their costs carried). Equally, there continue to be underworked older assets in more mature basins like the North Sea and the Gulf of Mexico (shelf) that are being off-loaded by the major companies and are continuing to provide opportunities for astute buyers.
Investor confidence is key. Both companies and their investors are seeking stability in the markets. During this time of lower investment confidence, oil and gas companies offering a more speculative and higher risk proposition to investors may find themselves towards the end of queue to find new investments. Bull runs attract cash across the board, particularly for the junior/mid-caps. As long as it is well managed with good assets and partners governed by robust contractual frameworks, they will do well, while other oil and gas companies less fortunate may struggle.