French oil group Total (TTA) has announced plans to invest nearly $50m (£31m) in the UK's fledgling shale gas sector. It is the first major oil company to enter the 'dash for shale gas' in the UK. Two utility giants, Centrica (CAN) and GDF Suez, announced similar plans last year.
Total can earn a 40 per cent stake in two exploration licences covering 240 square kilometres of the Gainsborough Trough basin in Lincolnshire by paying a nominal amount of prior costs and drilling two exploration wells. Aim explorers Egdon Resources (EDR) and IGas Energy (IGAS) each hold a 14.5 per cent interest in the licences. Other minority partners are private US oil group eCorp and Australia's Dart Energy (ASX: DTE). Shares in Egdon soared 55 per cent on the news, while shares in IGas climbed 18 per cent.
Prime Minister David Cameron also announced that further tax incentives for shale gas could be on the cards as the government goes "all out" to promote shale gas drilling. Under a new initiative, local councils could receive 100 per cent of the business rates collected from drilling schemes - double the usual 50 per cent. That's in addition to the small proportion of direct revenues that will be funnelled into local communities and previously announced tax breaks for the firms exploring for shale gas.
Egdon's managing director Mark Abbott told the Investors Chronicle that he expects project operator IGas to start 3D seismic work later this quarter. The firm will also conduct baseline environmental studies and start the lengthy planning and community consultation process before drilling could begin toward the end of 2014. "This area is one of the core areas for the development of the Carboniferous shale gas plays in Northern England," explained Mr Abbott. "We believe it has good, simple geology which has the correct parameters needed to develop shale gas."
Angus McPhail, an analyst at Edison Investment Research, said the farm-out deal with Total is undoubtedly "transformative" for Egdon. "Financial and equity markets' interest will now be heightened in Egdon's prospects as investors look for ways to buy into the UK shale gas story. We anticipate more oil and gas majors will look to strike similar deals with UK shale gas players."
