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Political uncertainties compound losses

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Political uncertainties compound losses

By Kiran Stacey

Published: September 27 2008 03:00 | Last updated: September 27 2008 03:00

Oil and gas companies are notoriously unpredictable investments. However, as three Aim-listed oil and gas companies reported interim losses yesterday, one predictable outcome in current markets is that many investors are likely to steer clear.

Regal Petroleum, Ramco Energy and Petrel Resources reported pre-tax losses of $2.9m (£1.6m), £1.2m and €400,000 (£320,000) respectively.

In spite of the different natures of their businesses there are sector-wide reasons that profits are so hard to come by, even when gas and condensate prices have been pushed up to $139 a thousand cubic metres, compared with $55 in 2007.

It is no coincidence that oil and gas reserves are common in the most volatile regions of the world. While Ramco and Petrel both have heavy investments in Iraq, Regal has its own problems with the changeable political situation in Ukraine, its main area of exploration.

Robert Wilde, Regal’s finance director said: “people are looking at Russia’s conflict with Georgia and asking, ‘Is Ukraine next?’ I think it’s very unlikely, but the market is still marking us down on it.”

However, Regal’s losses are a 71 per cent improvement on last year’s $10m deficit. The company said this was because of the increase in gas and condensate prices, which helped push revenues up 2.7 per cent to $6.7m.

For Ramco and Petrel, the situation is arguably less rosy, despite smaller losses. The past few years have seen slow progress for western oil companies operating in Iraq, following the decision of the new Iraqi government to implement fresh hydrocarbon legislation, the passage of which has become another casualty of the civil strife still affecting large parts of the country.

However, since Shell became the first western oil company to sign an agreement with the Iraqi government earlier this month, sentiment has picked up.

Ramco has diluted some of this risk by also entering the bidding process for offshore wind farms in the UK, which Steve Ramp, chairman, said had as much chance of generating cash as the Iraqi arm of the business.

Regal holds $137m of cash, while at the end of the first half Ramco had £900,000, down from £3.6m a year earlier, while Petrel had €16.6m in net debt.

However, in a sector where development is cash intensive and assets can have their value wiped out overnight, small oil companies remain an investment only for the brave.

Shares in Regal closed 2¼p down at 97¾p, those in Ramco fell 5p to 54p and Petrel lost 3p to 43p.

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