IGas will be due a massive uplift if it can develop UK shale, says Goldman Sachs
By Jamie Ashcroft June 04 2013, 11:04am
Goldman expects upcoming drilling and the ongoing farm-out process to provide the key catalysts for IGas in the rest of 2013Goldman expects upcoming drilling and the ongoing farm-out process to provide the key catalysts for IGas in the rest of 2013
An assessment by Goldman Sachs suggests UK shale firm IGas Energy (LON:IGAS) could be due a massive uplift in value if it can successfully develop its assets in North West England.
The investment banking heavyweight has upgraded IGas to ‘buy’ from ‘neutral’ after the company revealed bigger than expected estimates of its potential shale resources.
On Monday, IGas revealed that its licences could contain as much 170 trillion cubic feet of gas.
A study analysed reservoir characteristics and the thickness of the shale over a 330 kilometre area, and it also provided an estimate of the gas initially in place.
The ‘low’ estimate suggests some 15.1 trillion cubic feet (tcf) of gas in place, with a ‘most likely’ estimate 102 tcf. The ‘high’ estimate provides a figure of 170.3 tcf.
Chief executive Andrew Austin said the findings support the company’s view that it has very significant shale resources that could transform the company and materially benefit the local communities.
Goldman certainly agrees, as it claims there is material potential for a ‘re-rating’ of the AIM quoted share, based on the bank’s current ‘blue sky’ estimates the company could be worth up to 1,700% more than what’s being priced in currently.
Goldman does, however, point out that both UK shale and IGas’s projects are at an early stage, and it says the main risks would be any change in political sentiment on fracking, or disappointing drill results in the future.
For the rest of the year Goldman expects upcoming drilling and the ongoing farm-out process to provide the key catalysts, though the latter may take more time.
“We expect a number of catalysts in 2013 to drive the stock. Two appraisal wells are scheduled to be drilled in 2H13 by the company on its shale acreage which could significantly de-risk the Bowland shale from a technical perspective,” Goldman said in a note.
“A farm-out process is ongoing on the company’s shale assets; however, we think it unlikely a farmout will be concluded until the potential of the shale resource is fully evaluated.”
IGas is the only London listed firm with material interests in UK shale, and is just one of two companies to have confirmed a shale discovery via a well; the other being Lord Browne’s privately backed Cuadrilla, which has successfully drilled and tested shale gas near Blackpool.
Along with Cuadrilla, and its assessment of its assets, around 300 tcf of gas has now been outlined in North West England.
This means that estimates of select areas so far suggest the amount of shale gas in the ground would equate to 100 years of the UK’s gas needs.
Of course, it can't all be recovered economically - typically shale operations have recovery factors between 10 and 30%, though each project is different.
Nevertheless, these are very significant numbers, both for the UK and for the two relatively small companies operating the projects.
IGas has already talked about bringing in a partner to help it pursue the potentially huge opportunity, and high calibre names like Exxon have speculated among possibly suitors in the past.
But first, before IGas does any deal, it will launch a drill programme later this year. Initially, two wells are planned to follow up the shale discovery in the Ince Marshes well in early 2012.
According to IGas, the upcoming drill programme will further refine the shale gas resource estimates and will give the company more understanding of the basin.
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