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The 10th issue of the Shale Gas Investment Guide brings you in-depth analysis and reporting on the European, North African and global shale gas markets, together with key market data and indicators.
Shale Gas Investment Guide | by Wojciech Kość
UK SHALE

EXPLORER: Never Mind the Oil Price

We asked the CEO of IGas, one of the most active companies in the UK shale gas industry, about the impact of the 14th Licensing Round on the domestic industry, which though still fledgling could become Europe’s first to produce shale gas in commercial quantities.

IGas is one of the frontrunners in the potential shale gas boom in the UK. The company has recently been re-awarded seven blocks, on which it will explore once all formalities are finalized with the UK’s Oil and Gas Authorities. However, the impact of the licensing round extends way beyond the administrative process in which companies apply to get a mere piece of paper from the government, says IGas’s CEO Stephen Bowler. It also has the potential to give the UK shale industry the kick it has long badly needed since exploration stalled, he believes.
Firstly, the licensing round’s importance lies in the simple fact that it has attracted interest. A total of 95 applications have been received from 47 companies covering 295 Ordnance Survey Blocks. In August 2015 the UK completed the round, awarding 27 blocks to various companies, including seven for IGas (for a separate story on the licensing round, see page 24).

“The 14th licensing round has provided companies and investors with the confidence required to realise the significant opportunity to produce home-grown oil and gas and help secure Britain’s energy needs for the future,” Mr. Bowler told the Shale Gas Investment Guide. That future is still some way away, with the company not yet fully up to speed on its existing concessions in North West and East Midlands, or across the Bowland shale that is speculated to be home to over 30,000 billion cubic meters (BCM) of gas. “We will be putting an application in for a site in the East Midlands of England imminently, and are currently acquiring 3D seismic in the North West with a view to identifying further sites for exploration and appraisal,” Mr. Bowler said.


Like other companies about to be granted licenses in the 14th licensing round, however, IGas has yet to announce its exploration strategy on the new acreage it has successfully applied for. “It is too early at this stage to know when or where the first wells will be drilled. We are awaiting the second tranche before we will be able to determine our primary targets and begin making more specific operational plans,” Mr. Bowler said.

IT CAN MAKE ECONOMIC SENSE
One hindrance to rolling out a more specific exploration program is, at least in part, the unfavorable economic environment for gas. With the price of oil hovering at about $50 per barrel (Brent), unconventional exploration is not so attractive, as evidenced by the stalling effort in Poland - even if geology has also played its part there - and Romania. Mr. Bowler is however one of few executives in the shale gas business these days that likes to downplay the impact of the low oil price on his business.

“Gas prices in Europe have not fallen as significantly as the oil price, and remain significantly higher in Europe than, for example, in the US. We believe that shale gas in the UK will be economic in this gas price environment but requires further data,” he said. In order to reduce the risk of becoming caught between the high cost of exploration and falling gas prices, the company has also embarked on carrying out a cost-cutting program, Mr. Bowler says. “We have responded to the changing oil price environment. We have reduced the costs of running our business without compromising safety, commitment to the environment or performance of our operations,” he said.

“These measures will lower our net operating costs and S, G&A (selling, general and administrative) charges to below $40 per barrel for the year to 31 March 2016, excluding reorganisation costs,” Mr. Bowler said. Industry observers note that the interest shown by companies in this licensing round, as well as the ability to handle the economics of shale gas exploration in an environment of low oil prices, may mean the UK does finally spawn a functioning industry. The geology is thought to be world-class and the government, Mr. Bowler claims, has finally become active in helping companies like IGas.

The UK government has now given itself new prerogatives to step in if local councils prolong decisions on fracking applications, a practice that has plagued exploration in the UK, with firms like Cuadrilla Resources the best known example. “We very much welcome this step by the government in both giving shale gas ‘national priority’ status and providing clarity on the timetable for determining planning decisions,” Mr Bowler said.

Wary, however, of how sensitive the question of exploration is with local communities, he is quick to add that the company would take care not to go over the heads of the locals, even if armed with legislation from Westminster. “We remain focused on building strong, sustainable relationships and becoming a trusted part of the communities in which we operate. We believe that supporting and sustaining these communities is fundamental to delivering more domestic production and maintaining our social licence to operate,” Mr. Bowler claims.

Whether IGas’s exploration will pan out should be clear during 2016 and 2017 when the company - like others involved in the licensing round - will likely start more work on the ground, including exploration drilling.


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