Total helps boost UK fracking hopes

Total has become the first energy major to invest in the UK shale industry, compounding excitement as councils learned they would gain more from allowing fracking due to a tax boost.

The oil and gas major has acquired a 40% interest in two shale gas exploration licences in the Gainsborough Trough area of the East Midlands. Petroleum Exploration and Development Licences 139 and 140 cover a total area of 240 square kilometres.

Patrice de Viviès, Total's senior vice president for Northern Europe, said: "This opportunity is an important milestone for Total E&P UK and opens a new chapter for the subsidiary in a promising onshore play."

The licences are currently operated by Dart Energy subsidiary GP Energy, which will have a 17.5% interest following the acquisition, but IGas, which has a 13.5% interest, will operate from the acquistion and through the initial exploration phase. Total will then take over as operator for the development phase.

Total is to pay $1.6 million (£972,000) for the licences, and will also fund a $45 million development programme. Its other partners in the licence will be Dart Energy subsidiary GP Energy with 17.5%, Egdon Resources UK with 14.5% and eCorp Oil and Gas UK with 13.5%.

"There is a blanket ban on shale fracking in France so Total is obviously keen to try its hand across the Channel," commented analysts at Investec.

"The amount involved is small "biere" for Total but will give a fillip to the partners (and the UK government)."

The government was offering a sweetener of its own to councils on Monday, as Prime Minister David Cameron promised councils would receive all of the business rates collected from shale gas schemes rather than the usual 50%.

This could mean a financial gain of up to £1.7 million per site, and should allay some concerns over the environmental impact of fracking through the return of wealth to the communities affected.

Total also attempted to alleviate some of these concerns in its statement on the acquisition. The company, which already operates two projects on the West of Shetland area, said: "Safety is a priority for Total as well as safeguarding the environment.

"Total contributes to the communities in and around its north-east Scotland base and in Shetland."

Analyst view

Independent oil and gas analyst Malcolm Graham-Wood, always a proponent of UK shale, celebrated the deal and pointed out that it would benefit all concerned.

"For Dart this represents another excellent piece of farm-out business following the recent deal with GDF SUEZ and mean that they have raised money, opened up their UK acreage whilst being carried and remain with a substantial portfolio of assets in the exciting onshore basins giving them substantial flexibility," he began.

 "It is not an exaggeration to say that these two deals for Dart have had a meaningful effect on the company and its restructuring in recent months has been transformational."

He also believed that Dart would shortly look into a dual listing, "giving UK shareholders a chance to participate in this company which is now in a far better position than it was even 12 months ago."

He added that the deal "shows a good deal of upside" for the other partners and would also benefit the government. 

"The fact that a major, albeit a French major, has decided that it is worth the risks of the process to invest in the UK is good and validates their early confidence in the process," he said.

Finally, he discussed the possibility for more deals in the future. 

"This is probably not the end of the farm-out activity, these three companies have plenty more acreage and will encourage other companies in, for all of them momentum in the process is good news," he concluded.

"My spies tell me that there are other international players waiting on the side-lines, this deal can only speed up the process and frank the values already paid.

"With so few potential investment targets my mantra is not going to change, investors should consider investing in IGas (target 250p), Dart (25c+), Egdon (20p+) and also to consider other companies with as yet unrecognised shale assets such as my old favourite Alkane Energy (70p) which could put its unconventional assets together at some stage."