The number of oil and gas companies listed on the London Alternative Investment Market (AIM) will fall in 2007, according to the latest quarterly Ernst & Young oil and gas "Eye," an index that tracks the fortunes of E&P companies on AIM.

The index ended 2006 some 6% below its starting value in January, despite a record £1.5 billion of equity being raised by oil and gas juniors in 2006 compared with £1 billion in 2005. Only five companies took a listing on the exchange in fourth-quarter 2006.

Alec Carstairs, partner and head of oil and gas M&A at Ernst & Young, says, "The first half of 2006 was characterized by strong commodity prices, keeping stocks buoyant. But investor sentiment dropped off in August as commodity prices fell, and this has failed to recover for new listings. A general lack of positive news flow has exacerbated this trend."

The firm expects market pressures to continue into 2007. And these "are likely to force a number of oil and gas companies to reconsider their position on the exchange. Consolidation and/or graduation...are options for juniors that are looking to crystallize value from their investments.

"As a result, we anticipate that the number of oil and gas companies on AIM will be smaller in 12 months."

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