As the UK heads for the EU exit door, investors must start thinking about what this means for domestic energy policy.
Up until now it has been cheaper for the UK to import its oil and gas from European pipelines as well as the North Sea but should we leave the EU without a deal then it may be necessary to look at other options.
One company which could benefit is IGas, the UK’s largest onshore and gas producer. IGas is drilling the country’s third shale gas well in the north of England as it looks to follow Cuadrilla into fracking in the UK.
Two weeks ago the firm completed successful tests at that well at Tinker Lane in north Nottinghamshire.
The firm is doing the drilling with partner Ineos, which believes the drill tests show it could produce enough shale gas to keep the whole country supplied for 29 years.
Alex Smith at Investec says: “Core analysis is now being conducted and this should give further insight into the resource potential and shale characteristics. The company will give a further update upon completion of the analysis in quarter two.”
But critics say the shale gas industry has been slower to progress than expected, while recent polling for the Government has revealed increasing opposition to the controversial process for extracting shale gas from deep underground.
Cuadrilla has been testing at its Preston New Road site in Lancashire but tremors at the location have held the company back. Cuadrilla and Ineos want regulations on tremors to be relaxed to allow them to exploit shale gas reserves.
Nevertheless the UK remains one of only a few countries in Europe that allows shale gas exploration after a string of EU governments introduced bans on drilling in recent years. Regulation around shale gas developments has also been made easier as the Government recently set up a single watchdog, the Shale Environmental Regulator, “to act as one coherent face for the public, mineral planning authorities and industry”. Previously there had been three regulatory bodies.
Away from shale, IGas has a solid business from its 20 onshore fields.
Production has remained steady, benefiting from first production at its gas field in Albury back in November.
Brokers at Investec are optimistic about the firm’s prospects and have a 140p target price on the stock.
