Big Oil Interested in UK Shale Gas Partnership

From Reuters

reuters

By Sarah Young

LONDON, Jan 15 (Reuters) – British exploration firm IGas Energy has received interest from some of the oil industry’s biggest names to look for shale gas in the UK, its chief executive said, amid growing demand to develop the country’s unconventional resources.

Exxon Mobil was linked with IGas in December over a possible partnership. IGas has been running a process since June to find a partner to help it explore for shale gas at its licenses in northern England.

“The kind of names that have been talked about in the market are the kind of names that we’ve seen interest from,” said Chief Executive Andrew Austin. “It’s more majors.”

Britain’s potential to produce shale gas, a resource which has helped transform the U.S. energy market, has come into focus since the government lifted a ban last December on the fracturing process used in extraction, signalling its support.

Big oil firms are seen as key to developing British shale gas as their financial firepower and technical support could help the nascent industry move from the exploration to the production stage.

Funding for shale exploration is currently on a small scale. Igas said earlier on Tuesday it raised 23 million pounds via a placing at 95 pence per share, around a 17 percent discount to its closing price on Monday, to help it look for shale gas.

The company said around 15 million pounds ($24 million) of the proceeds of its placing would be used to drill two wells to appraise its shale resources.

“The $25m planned spend on the UK shale is high risk but potentially high reward if the company can demonstrate substantial commercial potential,” Jefferies analysts said.

He said he expects a partnership agreement to be signed in either the fourth quarter of 2013 or early 2014, adding that “non-traditional” companies had also expressed an interest.

STEP CHANGE

The future of Britain’s shale gas resources, the exploration of which are at a very early stage, received a boost when the government established a dedicated office for shale gas in December, something which Austin said came as a surprise.

“That confidence from the government and that positive support from the government has led to people’s increased appetite to have a good look at what’s going on,” he said.

The British Geological Survey (BGS) estimates Britain’s onshore shale reserves at 5.3 trillion cubic feet (150 billion cubic metres) – enough to meet Britain’s gas consumption for one and a half years. However Cuadrilla Resources, a privately-owned exploration and production company which is the only one to have tested shale gas in Britain to date, put that reserves figure as high as 200 trillion cubic feet.

Further evidence of the growing interest in UK shale gas came on Monday when Cuadrilla was revealed by its part-owner to be in early-stage talks with interested energy investors, believed to include utility Centrica.

IGas’s biggest shareholder is Canadian oil and gas producer Nexen Inc which owns a 24 percent stake. It did not participate in the recent share placing as it is in the midst of being acquired by Chinese state-owned giant CNOOC, which also did not participate.

The balance of the new funding will be used to help IGas acquire full ownership of the Singleton oil field in West Sussex as part of a $66 million deal first announced in September, which will give the company stronger cash flows to finance further shale gas exploration.

Separately, Egdon Resources, another UK oil and gas exploration company with market capitalisation of around 13 million pounds, said on Tuesday that external analysts estimated that its licences in the East of England could also potentially contain a material shale gas resource.

Shares in IGas were down 5 percent to 109.125 pence in afternoon trading, giving the company a market value of around 177 million pounds.

© 2012 Thomson Reuters. Click for Restrictions

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