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Total dips a toe in UK shale but BP and Shell unlikely to follow

Screen Shot 2012-07-12 at 16.32.59The French company trumpeted becoming the “first major to enter into shale gas licences in the UK”, calling it an “important milestone”. But its stance contrasts starkly to that of Shell, whose British chief financial officer Simon Henry said last year it had no desire to be “first in and be in the headlines every day in the UK”. Shell had “much higher priorities, and more attractive opportunities” elsewhere and would not throw money into shale…

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US majors next most likely to invest while BP and Shell expected to steer clear in the short term at least

By 9:07PM GMT 13 Jan 2014

 More international oil and gas majors may follow Total’s lead in joining the search for British shale gas – but BP and Royal Dutch Shell will not be among them, experts have predicted.

The French energy giant on Monday confirmed it would invest $48.1m (£29.3m) in the search for shale gas in the East Midlands, taking a 40pc stake in two licences held jointly by IGas, eCORP, Egdon Resources and Dart Energy

The move was hailed as the biggest vote of confidence yet in the potential of UK shale, following investments by GDF Suez and Centrica – two smaller but still heavyweight companies.

British Gas owner Centrica in June committed up to £160m in a deal to take a 25pc stake in Cuadrilla’s licences in the Bowland shale in north-west England and fund drilling, while France’s GDF Suez in October said it would invest £24m in acquiring a 25pc stake and funding drilling across Dart Energy licences in the north of England.

Industry experts say more deals are likely to follow, with IGas – which put partnership talks on ice last year to first carry out more drilling itself – seen as a likely contender. Attention is now focused on whether other majors will follow Total by entering the UK market.

 The French company trumpeted becoming the “first major to enter into shale gas licences in the UK”, calling it an “important milestone”.

But its stance contrasts starkly to that of Shell, whose British chief financial officer Simon Henry said last year it had no desire to be “first in and be in the headlines every day in the UK”. Shell had “much higher priorities, and more attractive opportunities” elsewhere and would not throw money into shale “because the UK feels it’s a good thing”.

BP, too, has indicated it is not rushing to follow Total. A spokesman said it had decided against investing in shale in the UK or the rest of Europe “for good geological and commercial reasons”. “We continue to monitor competitor results with interest, but so far we have no regrets,” he said.

Experts say BP and Shell’s attitudes reflect in part the typical reticence of the world’s biggest oil firms to enter new regions first; for most majors it is not yet clear whether UK shale is a prize worth pursuing – especially given the potential PR battle involved.

BP’s shale interests consist of ‘giant’ fields, Angus McPhail, analyst at Edison Investment Research, says. “Whether UK shale can be considered ‘giant’ at this stage prior to any extensive drilling having been completed is debateable.”

Shell meanwhile is undergoing a period of change with a new chief executive and about to begin a programme of asset sales. US giant ExxonMobil is believed to have held talks with IGas in 2012 and is still seen as a possible market entrant but, according to Malcolm Graham-Wood of advisory Hydrocarbon Capital, Exxon is likewise not sure whether UK shale is “worth it, being such small beer”.

But Total, unusually, has a reputation for dipping its toe into untested markets. “Total has always been prepared to go somewhere on the offchance,” Graham-Wood says. “Majors will normally try to get smaller companies to de-risk frontier acreage, but Total is slightly maverick.”

It has added reason to be interested in the UK because fracking is banned in its native France due to environmental fears – despite apparently promising resources, he says.

“If it is successful in the UK and people realise there’s an opportunity to get cheap energy, France will change its rules – and Total will have the expertise and a team in place to do the job.”

US companies are the most likely next entrants to the UK market as they look to make the most of the expertise they have acquired in the US market, he says.

Glynn Williams, partner at Epi-V, the oil and gas services investor, agrees. He picks out US giants ConocoPhillips and Chevron – who have both “invested significantly in the Polish shale market” as “plausible” contenders to be “the next majors to commit to the UK shale sector”.

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RELATED

UK Shale Gas Potential ( PDF 220 KB) – Parliament (Shale Gas Resource and Reserve Estimates.)

shale gas – Gov.UK (Analogies Used to Estimate Shale Gas Potential Reserves.

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