Shale gas fever lifts IGas

And despite IGas's relatively stable business model - purchasing and developing onshore oil and gas production, as well as piloting coal-bed methane (CBM) production - speculation promptly drove IGas's share price up to a high of 155p in early January from 70p. True, the shares have since settled back down to 110p, but we think a valuation of £178m for a company that also has net debt of £58m is high enough and are calling time on our long-standing buy tip (65p, 2 Oct 2009).

IGas discovered a shale gas structure of at least 1,000 feet on its PEDL 194 licence near Cheshire, UK, when drilling the Ince Marshes coal-bed methane well. It reportedly drilled into the same shale structure that privately-owned Cuadrilla Resources made headlines with last year, when it estimated it had found 200 trillion cubic feet of gas in place based on just two wells. IGas estimates its licence potentially contains 4.5 trillion cubic feet of gas initially in place or more.

Notwithstanding the current investor fever for UK shale gas plays, IGas bluntly states on its website that its producing oil and gas assets will be the company's core focus for the foreseeable future: "Although we intend to conduct more work to better understand the potential of our shale holding, we have no immediate plans to develop it". In fact, the company has been trying to farm out the shale play since June. It initially expected a deal to be completed within four to five months.

Meanwhile, IGas's other UK assets are performing strongly. Revenues skyrocketed during the latest six-month trading period following the company's acquisition of Star Energy Group and look set to rise further once IGas completes its proposed purchase of Providence Resource's (PVR) complementary onshore oil assets. With a price tag of $66m (£41m), however, this means IGas will remain saddled with debt for the near future.