The index of London-listed oil and gas producer share prices hit a more than one year high this morning. Of course, an index that embraces everything from the most tiddlerish of minnows through to the blue whales of BP and Shell contains many fallers as well as risers. But as an Argus blog noted on the day of the UK EU referendum result, the kneejerk sell-off of BP and Shell shares that morning was just a blip on a 12-month graph of prices, as was the down dip in crude prices.
Almost a week on and BP’s share price has not just recovered, it has flourished, rising every day since the referendum result, not on trend but strongly above the trend of the last six months. Why? Well, the dividend being paid in dollars, not sterling, certainly helps but there was also the welcome received for its upstream growth strategy update last week.
Shell’s share price rise has also been steep since the referendum result. It also pays its dividend in dollars.
And, being majors, both companies are geographically diversified and integrated so their risks are well spread.
But what of other stalwarts of the index? Ireland’s Tullow Oil is now, to all intents and purposes, a west African producer. Its share price has had a torrid time since late 2012 and just today it guided down its forecast for 2016 production after problems on its flagship Jubilee field offshore Ghana. But it has recovered from some nasty price falls on 24 and 27 June. The same goes for Premier Oil.
The price of crude has helped them all. Just as the share price dip was a blip, so was the fall in the price of front-month Ice Brent below $47/bl on 27 June. It is pretty much back where it was a week ago.
And what of companies with a proportionately larger exposure to UK upstream production? We have to await their results statements before we can see whether the depreciation of sterling – though that too has faded somewhat this week – nets out as a positive or negative for their cost base. But a glance at Enquest or Ithaca shows little cause for alarm.
All of which leaves us where? For oil companies, the UK vote represents no more than a little local difficulty in Europe and that’s how investors will treat it for now. What does matter greatly is how UK negotiations with the rest of the EU proceed and what impact that has on GDP growth in Europe. But those talks are months from starting and years from ending and in the meantime the oil market and oil industry is bound to bump into much more definitive events.
(You can see more Argus blogs on the UK’s EU referendum here)