The European oil and gas sector will be “unattractive” this year and is set to “struggle”, according to new research.
Analysts at S&P Capital IQ Equity Research said that would be down to poor revenues and earnings in the coming months as well as increased capital expenditure.
They downgraded the oil and gas sector to “underweight” and noted both revenue and earnings level were “one of the weakest” in the final quarter of 2012.
Robert Quinn, Chief European Equity Strategist at S&P Capital IQ Equity Research said: “Not only does the oil and gas sector have a poor track record on cost inflation but following the Macondo disaster new growth opportunities are increasingly expensive. A key theme across sectors in recent months has been dividend growth, with banks having the clearest plans to increase payout ratios which have re-rated the most strongly of late. With increased capital expenditure intentions, this will clearly be to the detriment of free cash flow and dividend growth.”
However, the researchers said there is still an “increased exploration appetite” among oil companies.
The Moncando disaster (the Gulf of Mexico oil spill) in April 2010 killed 11 workers and the well spewed 4.9 million barrels of oil into the Gulf for 87 days.