The oil and gas sector is set for a major M&A boom with every stock in the sector a possible bid target, according to new research from the corporate finance team at Ernst & Young.

The Alternative Investment Market (Aim) has been relatively quiet in terms of deal flow since the credit crisis hit markets over the summer. But that trend could well be reversed as the 90-plus companies in the oil exploration and production sector seem likely to go through a phase of significant consolidation.

Many of the oil prospectors on Aim are running out of cash, says Ernst & Young, and they will either have to take over rivals or be bought out themselves if they are to have a future.

Alec Carstairs, oil and gas partner at Ernst & Young, says: “A combination of weak share performance and low cash balances means that difficult times are ahead for the oil and gas juniors.

“Many of the Aim oil and gas companies face the prospect of either acquiring or being acquired in order to survive – in the current climate every junior is a potential target.”

The study, which will be released later this week, reveals that 65pc of the Aim oil and gas businesses have less than £10m cash left in the bank to spend on existing opportunities or new projects.

At the same time, around half of the oil and gas juniors on Aim are currently trading below their issue price. That makes it more difficult for them to raise money on decent terms by selling new shares.

Smaller oil companies are finding themselves short on funds partly because the cost of hiring rigs and other vital equipment has surged over recent years, pushed ever higher by unrelenting demand.

FIND MORE NEWS IN : Oil and Gas Potential M&A Target

Find More Mining News :