Unconventional oil and gas is primarily the domain of oil majors due to the colossal capital costs involved. However, a number of smaller companies have secured attractive positions in unconventional projects that could, if successful, provide substantial returns. We've picked out four potential winners:
IGas is the UK's first commercial producer of electricity from coal-bed methane. In partnership with Canadian company Nexen, the company is currently generating enough electricity to power some 1,200 homes from a test plant at Doe Green in Cheshire. IGas is looking to bring a second test well into production before the end of 2010 and has advanced plans for a third, following which the company should be able to prove commercial flow rates. Management estimates that its licences contain enough gas to power more than 4m homes for 15 years. The company recently identified shale gas prospects on its acreage that it will evaluate over the next six months.
Chinese coal-bed methane group Green Dragon Gas is set to prosper in 2010. Having proved the commercial efficacy of licensed horizontal drilling technology, it introduced ConocoPhillips as a joint venture partner and raised $75m (£50m) through a placing. Green Dragon is now poised to accelerate commercialisation of gas production from its acreage. It aims to double production this year to 1bn cubic feet (bcf) of gas and increase that to 18bcf by the end of 2011 as part of an aggressive $250m two-year capital investment programme. Vertical integration gives the company access to high retail margins and the company plans to add an additional 20 retail outlets to its current four that are selling compressed natural gas as vehicle fuel.
San Leon Energy has signed a farm-in deal with Canada's Talisman Energy that will help it develop two shale gas concessions in Poland's Baltic Basin. Talisman will bear the costs of the seismic survey programme and drilling of at least three, potentially up to six, wells. Talisman will acquire a 60 per cent interest in the concessions for a total investment estimated at $80m (£53m). The company also owns a multi-billion barrel shale oil play in Tarfaya, Morocco, the scale of which was demonstrated by Shell in the 1980s but wasn't pursued due to the low prevailing oil price. San Leon plans to use in-situ vapour extraction technology for the project, which has successfully been used in a US heavy oil project but hasn't been proven on a commercial scale with shale oil. San Leon plans to commission a trial plant by late 2010/early 2011, which if successful could be advanced directly to commercial production.
Altona Energy is developing the Arckaringa project in South Australia, which holds an estimated 7.8bn tonnes of coal that the company had designated for a coal-to-liquids project to supply the power-hungry South Australian region. The project was substantially de-risked by a recent joint venture concluded with CNOOC-NEI, a subsidiary of China National Offshore Oil Corporation, one of China's three largest oil majors. The deal introduces Altona to potential providers of the billions of dollars needed to construct the project as well as further customers for the fuel products. CNOOC-NEI's expertise and resources will also help Altona to appraise and develop products in addition to coal-to-liquids, such as synthetic natural gas, power co-generation and other forms of clean energy.
Company fundamentals
| Company | Price | TIDM | High | Low | Market value | Last IC view |
|---|---|---|---|---|---|---|
| Igas | 89p | IGAS | 91p | 45p | £82m | |
| Green Dragon Gas | 700¢ | GDG | 755¢ | 560¢ | £547m | |
| San Leon Energy | 21p | SLE | 30p | 13p | £78m | |
| Altona Energy | 14p | ANR | 20p | 2.85p | £59m | |
All companies' shares trade on Aim. Prices are as at 13 April 2010. You can get current prices, plus detailed financial data, charts, more IC articles and forecasts on our website. Go to www.investorschronicle.co.uk, enter the TIDM in to the search box, and click SEARCH. | ||||||
