With oil punching up towards $100 the outlook for the small oil companies remains very favourable. New listings on the Alternative Investment Market (Aim) may struggle as fund managers tighten their belts, but for quality companies, especially ones which can already demonstrate cash flow from existing operations, there ought to be few problems.
More significantly for the sector is that as oil remains high, parts of the world that were previously off-limits either due to political risk or just sheer expense are now back on the radar of the oil industry. With the notable exception of Russia, the majors tend to let the smaller oil companies take on most of the early-stage risk in these frontier propositions, but once big discoveries are made, they tend to move in quickly - witness Angola and Mauritania in recent years.
Small oils have got it going on in all parts of the world. Aminex is hoping to open up a new oil province off-shore East Africa, Faroe is still hopeful that the national waters of the Faroe Islands will deliver up some sizeable prospects, and down in the Falkland Islands, several companies, including Borders & Southern and Rockhopper are beginning to attract the attention of the bigger players. Who knows, 2008 may just be the year that a drill rig finally gets down to the Falklands again after a hiatus of many years. On the political front, Petrel in Iraq still offers some huge gains, but the risks there must be well known to anyone who's opened a newspaper in the past few years. More secure development in politically risky areas will come from the Former Soviet Union countries in Central Asia, although the scandal at Max Petroleum serves to underline that not all deals in that part of the world are won without the help of brown envelopes. The safer options continue to be the smaller North Sea players, and those with production in the politically safe, but the climactically turbulent Gulf of Mexico, such as Sterling Energy and Pan Andean.
