UK predicted to emerge as Europe's shale gas leader
Promising reserves numbers and juicy terms have lured developers. But prospectors must overcome a number of hurdles before exploration begins in earnest
Continental Europe’s unconventional gas development may have stalled but across the Channel things are moving apace. The UK should emerge as Europe’s shale gas leader. Government backing has opened a new frontier for developers. Promising reserves estimates have also lured major energy companies. Many firms have bought into existing licences.
Recent studies by the British Geological Survey (BGS) suggest there could be up to 2,415 trillion cubic feet (cf) of shale gas across northern England’s Bowland basin and the Midland Valley, in Scotland. BGS data also show that southern England’s Weald basin could hold almost 9 billion barrels of shale oil. If proved, this would triple the country’s crude reserves.
In January, Total became the first major to enter the UK’s shale gas sector, buying stakes in two exploration licences in central England. Total’s move yielded a spike in merger and acquisitions activity, which saw several farm-ins, company takeovers and asset swaps as international firms scrambled to gain a foothold in this promising new sector. Total bought 40% of two licences, PEDL139 and PEDL140, which cover around 240 square km in the Gainsborough Trough area of Lincolnshire, in eastern England.
The French firm will team up with a number of independents to develop them. GP Energy, a subsidiary of Dart Energy, has a 17.5% stake in the licences, alongside Egdon Resources (14.5%), IGas (14.5%) and eCorp Oil & Gas UK (13.5%).
IGas will act as operator for the initial exploration programme, with Total taking over operatorship once the first phase of exploration work is complete. Total will pay $1.6 million in back costs to the partners and fund a fully carried work programme of up to $46.5m, with a minimum commitment of $19.5m, according to IGas.
IGas operates across 26 licence areas in northwest and eastern England, the Weald basin in southern England and northern Scotland. The company operates the UK’s only coal-bed methane (CBM) pilot site at Warrington, in northwest England, and is appraising and exploring its acreage elsewhere in England to assess shale and CBM reserves.
In June 2013 the UK independent said it had studied the Lower Carboniferous shales in its licence areas, which cover around 777 square kms between Liverpool and Manchester, and estimated they could hold resources of up to 172.3 trillion cf of shale gas. Some of IGas’s licence area covers the Bowland Shale, where Cuadrilla Resources said in 2011 it had found reserves estimated at an initial 200 trillion cf of shale gas.
While Total is the biggest company to have joined the UK’s shale-gas hunt, the country’s potential has brought a plethora of other big deals.
In October 2013 GDF Suez bought a 25% share in 13 of Dart Energy’s UK onshore licences in Cheshire, in northwest England, and in eastern England. The licences are also centred on the Bowland Shale, which the BGS said could hold resources of 2,281 trillion cf of shale gas. The GDF Suez deal followed one in June 2013, when UK utility Centrica bought a 25% stake in Cuadrilla Resources’s Bowland acreage.
The shake out since then has continued. IGas announced last May that it would buy Australia’s Dart Energy for A$211.5m ($198m), creating the largest shale gas exploration company in the UK. The deal, expected to close in September, will see Dart shareholders take a 30.5% stake in the enlarged company. Both companies said the merger would create “a UK national energy champion”, with combined licence areas amounting to more than 1m net acres across major UK shale basins.
Australian independent Dart has 24 licences in the UK, which are thought to hold shale gas and CBM reserves. Dart has farm-out deals with GDF Suez and Total to fund and carry out shale gas and CBM exploration work programmes on some of these UK licences over the next three years. The larger company will have a stake in several onshore shale licences funded by GDF Suez and Total.
With the corporate shape of the sector emerging, the UK government is trying to straighten out licensing arrangements, too, offering tax breaks, on the one hand, and pledging to reform trespass laws, on the other.
The government’s Infrastructure Bill, outlined in June, aims to spur development by clarifying and streamlining the underground access regime. The government hopes shale gas will help staunch the rise of UK energy imports, a consequence of declining output from the UK’s offshore oil and gas sector.
At the end of July the UK’s Department of Energy and Climate Change (Decc) released details of acreage which would be on offer in a long-awaited onshore licensing round, the country’s 14th. The new round will, for the first time, include blocks for shale gas exploration. Companies have until 28 October to bid for some of the hundreds of blocks on offer across northwest and southeast England and Scotland. A successful bid will, however, be just the start of the process for developers. Winning bidders will also need permits from regulatory bodies such as the Environment Agency and the Health and Safety Executive.
The government added that applications for unconventional oil and gas development in national parks and other sites of natural or historical significance, such as world heritage sites, would be refused “other than in exceptional circumstances and in the public interest”.
Decc will also need detailed environmental statements alongside licence applications in those areas. If an application in these areas is refused locally and the shale gas developer appeals against that decision, approval of the application will rest with Eric Pickles, the UK’s local communities minister, who will review the appeal during the following 12 months.
Companies must also meet Decc’s requirements for technical competence and financial capacity. Despite strong government support for developing shale gas in the UK, public opinion on hydraulic fracturing remains polarised. There are political sensitivities, too.
The blocks on offer in the 14th licensing round cover 506 parliamentary constituencies, including 10 of the UK’s 13 national parks, nearly half the principal aquifers, and the country’s 10 biggest cities.