Total becomes first major to invest in UK shale gas exploration
13 January 2014
French oil major Total has announced it is taking a 40% stake in shale gas licences in Lincolnshire. It is thus the first international oil and gas group to throw its weight behind Britain’s nascent shale gas industry, in a move that will be hailed by ministers as a significant vote of confidence.
The Government expects shale gas to provide an important new source of energy for the country as North Sea resources dwindle. The UK is believed to have vast shale gas resources but very little drilling has been done to test how much gas can actually be extracted.
Total is expected to commit about $45m to a drilling programme, as well as paying about $2m in past costs, sources said. The deal is understood to involve licence areas PEDL 139 and 140, which span more than 90 square miles in the so-called Gainsborough Trough geological basin.
The investment is small in oil industry terms, and especially small in the context of the tens of billions of dollars spent every year by Total, one of the world's top five investor-controlled oil and gas groups. However, having such a large player as a partner will be a feather in the cap for the industry.
The existing partners in the licences - Dart Energy, IGas Energy, Egdon Resources and eCORP – are all believed to be involved in the deal, transferring part of their stakes to Total.
Britain's IGas will be the operator of the initial exploration programme and Total will take over ownership of the projects as they reach the development phase, the companies said.
The gas will be recovered through fracking, which involves pumping water, sand and chemicals into the ground to extract gas trapped within rocks, and is banned in France due to environmental fears.
Total has also been in talks with other UK shale companies about acquiring stakes in their licences.
Monday’s deal will make Total the second French company to buy into the search for UK shale, following GDF Suez, which signed a £24m exploration deal with Dart Energy in October. British Gas owner Centrica bought into licences owned by Cuadrilla in a deal worth up to £160m in June.
Ministers and the shale industry are next week expected to confirm further details of cash benefits for communities near fracking sites, intended to help win public support.
The industry has so far promised £100,000 for every well that is fracked and a 1pc share of revenues if gas is produced, and is expected to set out how those funds will be administered.
Ministers have indicated that the 1% share could be increased at a later date if shale proves successful but have resisted calls from the Local Government Association to give communities a legal right to a 10pc share.
The Government could also introduce other sweeteners to win local support for fracking operations. There is speculation in the UK media that local councils will be able to keep 100% of business rates from fracking, against 50% at present, and a portion of revenues generated by shale gas companies could be paid directly in cash to homeowners living nearby.
The business rate offer, which was proposed last year by the Institute of Directors, could be worth up to £1.7m a year for a typical site.
Funds of up to £5m-£10m will be paid at a typical site over its lifetime – a lump sum of £100,000 when a test well is fracked, plus 1% of revenues. Direct cash payments could be made to homeowners living near fracking sites.
James Sproule, chief economist at the Institute of Directors, said: "The IoD recommended last year that the government allow local authorities to keep 100% of the business rates from shale sites, so we very much welcome this as another encouraging step in the right direction. It's vital that local communities see the benefits of new industry in their area, and this announcement sits alongside existing plans to support communities connected with the development of shale gas.
"Investment from Total is a vote of long-term confidence in the UK shale industry, and is a welcome sign that the government is creating the conditions necessary to maximise the potential benefits of a new domestic energy source. The wider benefits are clear; shale gas development could create tens of thousands of jobs, reduce imports, generate significant tax revenue and support a resurgence in British manufacturing. In short, shale gas could be a new North Sea for Britain."
Contact Details and Archive...