IGas Energy (LON:IGAS) received a significant boost as it prepares to begin its fracking programmes in 2015.
The British oil and gas company, which is one of a handful of explorers pioneering shale projects, today upgraded estimates for its projects, defining between 50 and 352 trillion cubic feet (tcf) of gross gas-initially-in-place (GIIP) in the north of England.
At the same time IGas’s net GIIP is estimated between 34 and 263tcf, with 147tcf deemed ‘most likely’ – up from the previous range of 15 to 172tcf, with 102tcf ‘most likely’.
The revisions come after a successful exploration well drilled near Manchester confirmed pre-drill expectations.
The estimate also for the first time factors in the acreage acquired as part of the purchase of its UK shale rival Dart Energy.
That IGas’s acreage contains more gas than previously thought is, of course positive, but, today’s news is not a game changer in itself.
It simply adds another layer of confidence to what was already understood – that shale formations in the North West of England contain a vast untapped resource.
What is more significant about the Barton Moss well is that it has allowed IGas to learn more about the nature of the shale formations as well as the rocks that surround them.
Barton Moss is the first well that IGas has been able to core and analyse fully, and it has yielded several pieces of information that will help with the design of future programmes.
The well represents a significant step towards a vital phase of work, involving fracking and testing, which will help answer the commercial unknowns of Britain’s shale.
“What we now need is a number of flow-tests to confirm that the hydrocarbons, which we know exist, can be flowed at commercial rates,” IGas chief executive Andrew Austin said in a Proactive Investors interview.
Two wells are scheduled for 2015, one in the North West and one in East Midlands, subject to planning permission. The plan is to go the whole hog this time and drill, frack and test them both.
In the meantime, drilling is expected to get underway on a separate vertical exploration well in Ellesmere Port, near Merseyside, in the next month or so.
Austin said he doesn’t yet know whether the fracking programmes will take place before or after next year’s General Election.
Canaccord Genuity analyst Charlie Long, meanwhile, suspects other UK shale players, including privately owned Cuadrilla, may have similar plans for fracking in 2015.
The work is likely play an important role in determining the commercial case for Britain’s embryonic shale sector, he explains.
“What is not in question is whether there is a lot of gas in the ground, I think that is now well established,” said Long.
“What is unknown at the moment is whether the gas is commercial.”
IGas and Cuadrilla need to learn a number of things, such as how much a typical UK shale well will cost, the investment needed for the necessary infrastructure and crucially whether shale gas production volumes will justify that outlay.
“It is a combination of things that as yet are not understood,” said Long, who also identifies other “broader issues”, namely land access and community support – or possibly the lack of it.
The analyst says towns and villages close to these wells will need to believe they can participate in the benefits of shale gas production if they are to be supportive.
“Local communities won’t be that interested in the commercial case for oil and gas companies if they don’t think they’re going to participate in the benefits,” he said.
“And they also have to feel comfortable that there isn’t going to be undue disturbance to the local community, from drilling and fracking, and the comings and goings that are inevitably required as part of these operations.
“I imagine that these are the issues to weigh up.”
Counter-balancing the likely opposition to fracking is the pressing need to develop new sources of energy.
Just last week National Grid warned that emergency measures may be required this winter as the Britain faces its lowest winter capacity in eight years.
“I think the country has to buy in, on a higher level, to the fact that we may need to give shale gas its chance,” the analyst concludes.