ARE MID-MARKET ENERGY COMPANIES IN OVER THEIR HEADS ?
The 2016 BDO Global Energy Middle Market Monitor reviews and analyses financial data reported by 304 publicly traded middle market oil and gas companies from 37 country and international stock exchanges from 2010 to 2015. The companies analysed reported revenues up to $1.5 billion, with median revenue of $67.6 million. Companies were primarily traded on exchanges in Australia, Canada, the United Kingdom and the United States. All data was sourced through S&P Capital IQ.
According to a new study from BDO, a leading global accounting and consulting firm, the median market cap among middle market oil and gas companies dropped 58 percent between 2014 and 2015—from USD $219 million to $91 million. Historic price-earnings (PE) ratios took a hit as well, decreasing as abruptly as earnings. The median historic PE ratio fell to 6.4 this year, compared to 12.4 last year and an overall high of 25.6 in 2010. Now that the sector has gotten its reality check, however, it is perhaps poised to make a steadier—and arguably more sustainable—recovery.
ADDITIONAL FINDINGS FROM THE BDO 2016 GLOBAL ENERGRY MIDDLE MARKET MONITOR INCLUDE:
Industry struggles with declining revenues, profits. Year-over-year changes in median annual revenue highlight that the pain of the price slump truly hit the global energy sector in 2015: The median revenue across all companies assessed fell by about 30 percent, from $96.9 million in 2014 to $67.6 million in 2015. As revenues have slipped, so have profits for middle market oil and gas companies. Globally, median pre-tax income declined from $5.9 million in 2014 to a net loss of $30.2 million in 2015, an overwhelming 614 percent decrease. After taxes, net income dropped from $5.1 million to a loss of $30.5 million, a seven-fold decline.
Energy companies fight to secure capital. As margins and investor confidence have slipped, oil and gas companies have struggled to secure capital to keep their businesses afloat. Last year’s Global Energy Middle Market Monitor found that companies had grown more leveraged as they turned to debt financing to weather the storm, and this year’s study reveals that this trend largely continued in 2015. The median debt ratio grew by nearly 25 percent this year, with Australia seeing debt ratios double. Meanwhile, the U.K. saw a modest 11 percent increase, while Canada and the U.S. saw median debt ratios largely in line with global trends.
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