IGas Energy (LON:IGAS) has released a statement welcoming yesterday’s fracking report from an expert panel appointed by the Department of Energy and Climate Change (DECC).

The report was a response to the environmental impact of fracking in the north of England, near Blackpool, after privately owned Cuadrilla Resources had to halt drilling last year following a number of small tremors.

A panel of experts has now concluded that there was no reason why Cuadrilla could not resume fracking operations under tighter regulatory conditions and monitoring.

A six week public consultation will now follow, before the DECC finalises its new set of rules for fracking in the UK.

IGas said today it fully supports the view that if shale gas is to be part of the UK's energy mix there needs to be a good understanding of potential environmental impacts as well as the things that can be done to mitigate those impacts.

The company also said it supports the recommendation for ‘an effective monitoring system and a traffic light control regime’. 

And IGas says it will be responding positively during the consultation period that follows the DECC report.

IGas highlights that it is one of the largest onshore producers of hydrocarbons in the UK with a track record since the early 1980's, including more recently pilot sites for the extraction of coal bed methane in the North West of England.

Its interests include a variety of onshore hydrocarbons including conventional oil and gas, coal bed methane and shale gas.

IGas’s primary focus is coal-bed methane, a type of unconventional gas found in coal seams. But, in January a CBM well in Cheshire hit what IGas described as a ‘very significant’ amount of shale gas. 

It is thought that the Ince Marshes discovery could be at least twice the size of the original pre-drill estimate of 4.6 trillion cubic feet. 

The firm is now undertaking a formal process to find a partner for the shale project after it received a number of approaches over possible farm-ins. Once in place the venture will asses and subsequently develop the potentially significant shale resource.

“As is the case with all IGas Energy sites, we will only start to develop our shale resource following full community consultation and alongside a comprehensive planning process with all relevant agencies including DECC, the HSE and the Environment Agency,” IGas said.

The energy group said that after looking at the data from its first well at the field, near Warrington, reserves could be twice the independent pre-drill estimate of 4.6Tcf.

Elsewhere, the group added that its coal bed methane (CBM) wells at Doe Green have started dewatering and are showing early gas, though the rates have yet to stabilise.

IGas said it had commissioned the export equipment and all three wells are now connected to the facilities. 

The company's production assets, bought in with the acquisition of Star Energy last year for £10 million, averaged production of 2700 barrels daily, 20 per cent ahead of CPR estimates, in the first three months of 2012.

A revised independent resource estimate on the conventional assets is expected by the summer.

It also intends to apply for planning permission to bring the Albury gas field in the Weald Basin on stream in 2013.

Part of Star Energy, Albury was suspended following the drilling of a well for potential gas storage use but IGas has now flow tested a well at the field, which produced at a rate of up to 1.5 MMscf/day (260 boe/d).

Andrew Austin, chief executive, said: "Ince Marshes-1 is a particular highlight, potentially at least doubling the independent pre-drill estimate of 4.6Tcf of shale resource. 

"Our shale potential offers a significant opportunity for the company and to potential partners, in addition to our CBM resource base of over 300 million boe. 

"The UK Government's announcement about a new gas generation strategy and the support given in the budget to the industry are all signs that UK sourced hydrocarbons are going to play an increasingly important role in the future energy mix of the country."

The deal takes the group’s production profile beyond the 2,500 barrels of oil equivalent marker.

The firm’s 1P reserves now stand at 6.5 million barrels oil equivalent, while 2P reserves are 11.1 million barrels and 3P comes in at 16.7 million. Resources are now 241-412 million barrels (1C to 3C) and the in-place numbers range 904 million to 4.1 billion barrels of oil equivalent.

This is the group’s second major completion during 2011, after it acquired the assets of its JV partner Nexen UK in the first quarter, and it greatly strengthens the company’s position.

IGas chief executive Andrew Austin said: "2011 has been a transformational year for our company.

“Taking full control of our unconventional assets earlier in the year and now the acquisition of Star Energy has consolidated our position as a substantial onshore oil and gas company with an extremely exciting future ahead of us. 

“We now have the combination of assets and capability to deliver significant value on behalf of shareholders"

Notably the deal includes a gas sales agreement with PETRONAS, whereby IGas sells its first 150 billion cubic feet of gas to the vendor at market derived rates. In this respect IGas confirmed that that 1,500 boepd of next year’s production has been pre-sold at US$93.4 per barrel (net). 

IGas is paying £110 million to buy Star Energy’s assets. This has been funded by a US$140 million new debt facility through Macquarie Bank. 

Shares in UK-focused gas producer IGas Energy (LON:IGAS) were up 2.1 per cent at 51.6 pence in late-morning trading today after its shares resumed trading on the Alternative Investment Market. The shares had been temporarily suspended since September 19 when it announced a reverse takeover of Star Energy Group.

The firm also announced today that it had made “significant progress” in recent months, after getting three wells from its current drilling campaign underway.

On September 19, IGas said it would drill between four and six wells by the second quarter of its 2012 financial year. Today, the firm said three wells have been completed, or are underway. Its DG-3 well at Doe Green, near Warrington, has drilled 1,500 feet of coal, while DG-4 spudded on October 10 and its Ince Marshes project, also in Cheshire, spudded on November 4.

IGas is currently operational at four sites: DG-3, DG-4, Inces Marshes and Ellesmere Port. Site construction is also underway at Barton, Salford.

Meanwhile, on December 9 IGas plans to hold a ‘general meeting’ in London at which it will seek shareholder approval for the acquisition of Star Energy Group from Petronas International Corporation. The £110 million acquisition comprises the UK onshore production assets of the Star Group. “This is a transformational deal for IGas Energy,” said Andrew Austin, IGas’s chief executive officer. “With this acquisition we will be creating a substantial onshore oil and gas company in the UK. The enlarged group is expected to have a growing production profile as IGas Energy’s combined oil and gas resources are developed. We are acquiring an experienced team and the enlarged IGas team will have the necessary capabilities to exploit both the existing assets and those being acquired as part of the acquisition.”

UK-focused gas producer IGas Energy (LON:IGAS) said this morning that it had made “significant progress” in recent months, after getting three wells from its current drilling campaign underway.

The firm is also heading towards decision day regarding gaining shareholder approval for its reverse takeover of Star Energy Group.

On September 19, IGas said it would drill between four and six wells by the second quarter of its 2012 financial year. Today, the firm said three wells have been completed, or are underway. Its DG-3 well at Doe Green, near Warrington, has drilled 1,500 feet of coal, while DG-4 spudded on October 10 and its Ince Marshes project, also in Cheshire, spudded on November 4.

IGas is currently operational at four sites: DG-3, DG-4, Inces Marshes and Ellesmere Port. Site construction is also underway at Barton, Salford.

Meanwhile, on December 9 IGas plans to hold a ‘general meeting’ in London at which it will seek shareholder approval for the acquisition of Star Energy Group from Petronas International Corporation. The £110 million acquisition comprises the UK onshore production assets of the Star Group. “This is a transformational deal for IGas Energy,” said Andrew Austin, IGas’s chief executive officer. “With this acquisition we will be creating a substantial onshore oil and gas company in the UK. The enlarged group is expected to have a growing production profile as IGas Energy’s combined oil and gas resources are developed. We are acquiring an experienced team and the enlarged IGas team will have the necessary capabilities to exploit both the existing assets and those being acquired as part of the acquisition.”

IGas Energy’s (LON:IGAS) plan to take full control of its UK CBM licences has received a regulatory rubber-stamp today.

In January IGas announced a £26.6 million deal to buy the UK assets if its joint venture partner Nexen Petroleum (TSE:NXY). The deal effectively sees IGas take full ownership and control of its licences. Subsequently it also raised £20.625 million through a share placing to help fund the acquisition and accelerate its development plans.

This morning IGas told investors that the British Department of Energy and Climate Change has approved the deal, and gave the company the green-light to solely operate the licences.

IGas said that it was informed yesterday that Chris Huhne, Secretary of State for Energy & Climate Change, does not intend to revoke any of the licences or to seek any further changes of control of Nexen Exploration U.K. Limited following its acquisition by IGas Energy.

The deal will now go to a shareholder vote on 4 March 2011.

The acquisition takes the firm's contingent recoverable resource of IGas by 115 per cent to 1.74 trillion cubic feet of gas, or 260 million barrels of oil equivalent. Enough to supply 15 percent of UK homes for 15 years, the company said in January. The company believes that the acquisition will be a major turning point in its history. 

Crucially it will gain full control of all the licence acreage, and as such it will be able to accelerate the delivery of its production plans.

It will now issue 27.5 million shares, which represents 29.5 percent of the existing share capital, priced at 75 pence per share. The placing price represents a 7.4 percent discount to yesterday’s close.

The shares eased a little over 3 percent lower from 81 to 78 pence, as investors digested the details of the placing.

Last month IGas announced the £26.6 million deal to buy Nexen Petroleum’s (TSX:NXY) UK assets. It will be issuing 39.7 million new shares to Nexen as part of the ‘all paper’ deal. 

The acquisition takes the firms contingent recoverable resource of IGas by 115 per cent to 1.74 trillion cubic feet of gas, or 260 million barrels of oil equivalent. Enough to supply 15 percent of UK homes for 15 years, the company said in January.The company believes that the acquisition will be a major turning point in its history. 

Crucially it will gain full control of all the licence acreage, and as such it will be able to accelerate the delivery of its production plans.

This new funding will support this accelerated approach. The new capital is being earmarked for an accelerated drilling programme across its acreage from 2011 onwards. IGas already has around £12 million which will help the company bring its first commercial production site online, as well as supporting its progress with gaining land access the Point of Ayr project.

"Following the Nexen transaction, IGas is now in a position to accelerate its forward drilling plans,” Andrew Austin said. 

“With the completion of the Nexen transaction and with the proceeds of the proposed placing, 2011 is set to be a transformational year for IGas as the company heads for commercial production and drilling at a number of new sites.

“In closing this acquisition and the placing we will have both the resources and the control to deliver production and reserves from our assets."

IGas intends to drill at least two additional production wells at Doe Green – the first commercial production site - as well as a pilot well at the Point of Ayr site, assuming land and planning consents are obtained. 

It also hopes to start work on at least one other production site by early 2012. The new capital will help fund site construction and it will provide sufficient flexibility to fully utilise rig equipment. There will also be ongoing investment in the production facilities to coincide with the production drilling.  

With established commercial production and ongoing drilling, IDas expects that it will be able to start converting its resources into reserves.

It may also hire an additional rig next year, with which it will drill up to three boreholes. This would fulfil its outstanding licence commitments on three licences (PEDL 190, 184 and 193). Each well would potentially be retained as a future production well. 

These placing shares will represent around 29.5 percent of the existing share capital. The exact details of the placing, number of shares and price, were not disclosed but at the current price of 81 pence these shares would be worth over £22 million.

The placing, which is being arranged by RBS Hoare Govett, is expected to close by the 7 March 2011.

Last month the British coal bed methane (CBM) firm announced the £26.6 million deal to buy Nexen Petroleum’s (TSX:NXY) UK assets. 

IGas will be issuing 39.7 million new shares to Nexen as part of the ‘all paper’ deal. The acquisition takes the firms contingent recoverable resource of IGas by 115 per cent to 1.74 trillion cubic feet of gas, or 260 million barrels of oil equivalent. Enough to supply 15 percent of UK homes for 15 years, the company said in January.

The company believes that the acquisition will be a major turning point in its history. Crucially it will gain full control of all the licence acreage, and as such it will be able to accelerate the delivery of its production plans.

This new funding will support this accelerated approach. The new capital is being earmarked for an accelerated drilling programme across its acreage from 2011 onwards. IGas already has around £12 million which will help the company bring its first commercial production site online, as well as supporting its progress with gaining land access the Point of Ayr project.

"Following the Nexen transaction, IGas is now in a position to accelerate its forward drilling plans,” Andrew Austin said. 

“With the completion of the Nexen transaction and with the proceeds of the proposed placing, 2011 is set to be a transformational year for IGas as the company heads for commercial production and drilling at a number of new sites.

“In closing this acquisition and the placing we will have both the resources and the control to deliver production and reserves from our assets."

IGas intends to drill at least two additional production wells at Doe Green – the first commercial production site - as well as a pilot well at the Point of Ayr site, assuming land and planning consents are obtained. 

It also hopes to start work on at least one other production site by early 2012. The new capital will help fund site construction and it will provide sufficient flexibility to fully utilise rig equipment. There will also be ongoing investment in the production facilities to coincide with the production drilling.  

With established commercial production and ongoing drilling, IDas expects that it will be able to start converting its resources into reserves.

It may also hire an additional rig next year, with which it will drill up to three boreholes. This would fulfil its outstanding licence commitments on three licences (PEDL 190, 184 and 193). Each well would potentially be retained as a future production well. 

Today it unveiled a joint venture with Meehan Drilling, which immediately gives the company 120 days extra drilling capacity this year and more beyond that on a “preferential basis” if needed. 

IGas chief operating officer John Blaymires said "This joint venture will have significant strategic and tactical importance as the company continues to grow. 

“This joint venture secures for IGas the ability to fulfill the 2011 objective of delivering a commercial production site, whilst widening the scope of our activity and will be a critical element of the 2012 delivery capability. 

“This is the first of a number of steps we are taking to advance our plans following the announcement of our planned acquisition of Nexen Exploration UK."

Meehan has drilled for a number of operators here in Britain and the joint venture specifically involves its Schramm TXD rig. This piece of kit is regularly used in the US for drilling for unconventional gas and has a proven track record of economic delivery of wells.

IGas is putting in place the building blocks to become a major player in the domestic gas exploration, with the all-paper deal inked earlier this week central to its plan. 

It increases the contingent recoverable resource of IGas by 115 per cent to 1.74 trillion cubic feet of gas, or 260 million barrels of oil equivalent. 

The agreement will also give IGas access to Nexen's unconventional gas technology, including the secondment of key personnel. The Canadian giant will also receive a seat on the IGas board.

IGas is is issuing 39.7 million shares to Nexen worth £26.6 million at Friday’s close, or the equivalent of 29.9 per cent of the company’s enlarged equity base.

IGas Energy is the leading player here at home in coal bed methane business and it has a large portfolio of prospects, which could help the UK meet the increasing demand for domestic fuel supplies.

It has interests in licences that cover 1,756 square kilometres in North West England and North Wales.

It has planning permission for fifteen locations, allowing a range of activities from full production sites in brown-field areas to assay wells in green-field locations.

IGas has a number of full production sites already permitted and it should shortly announce the scale and scope of its first full production site.

The company’s potential has not gone unnoticed. In recent weeks the Royal Bank of Scotland and Goldman Sachs each published in-depth research on IGas as they assessed the prospects for the burgeoning coal bed methane industry here in Britain.

The team at Goldman believes the market is applying an excessive risk premium to IGas’s methane assets and the stock is an attractive unconventional gas play. 

 In November Goldman initiated its coverage on IGas with a ‘buy’ rating, setting a 119p a share price target (current price 63.89p).

RBS said it does not believe that attractions of the IGas investment case will stay below investor’s radar much longer and sees significant upside from the current share price.

The potential of shale gas as an unconventional gas source has enjoyed extensive coverage in the media recently, and RBS said that IGas’ coal bed methane resource could make for an even better alternative as it is carrying less of a risk, in its view.

The press interest, including yesterday’s article in the Sunday Times, was drawn to a well that is being drilled by Cuadrilla Resources northwest England. This well is a part of a programme to determine the potential for shale gas resources in the region.

Shale gas is natural gas trapped in relatively low permeability rock which is produced by hydro-fracturing, essentially improving the permeability by blasting the rocks with a mixture of water and proppants to create and keep open cracks which enable the gas to flow.

As the production of the UK’s conventional gas resources including those in the North Sea continues to decline, unconventional gas sources are likely to move into the into limelight as they could help the UK reduce its reliance on imports.

The US successfully diversified its gas supply with shale gas, triggering a land grab for the most prospective acreage occurring in most regions.

RBS noted that the industry may not evolve as quickly in Europe as it did in the US, but any challenges for the shale gas industry highlight the attractiveness of the IGas Energy investment case.

CBM is an already established part of the US and Australia gas supply mix and its coals are unlikely to need anywhere near the level of hydro-fracturing as the shale resource.

In addition to that, IGas’ coal bed methane resource of 807 billion cubic feet across its UK acreage carries a lower risk, according to RBS.

The company has a number of full production sites permitted and should shortly announce the scale and scope of its first full production site.

“In summary, while UK shale gas is generating headlines, IGas is way ahead in its efforts to supply significant quantities of gas from uncoventional resources,” said RBS.

Quantifying its bullish stance on the IGas’ prospects, RBS retained its conceptual valuation of 265 pence given the company upon initiation of coverage in early November.

It is interesting to note that this valuation that is far ahead of the current market value of 64 pence is based on a UK gas price of 48 pence per thermal unit , while day ahead prices have just spiked to 63.4 pence/therm as a result of a renewed focus on the country’s levels of storage that are relatively low when compared to those of major European gas consumers.

The conceptual valuation would rise to a staggering 430 pence at this price.

RBS stated that IGas should go for further fundraisings to increase interests in key licenses and fund an aggressive development programme.

The note from RBS basically echoes a similar report from Goldman Sachs (NYSE:GS), which came out a little over a month ago.

The investment bank said that the market was applying excessive risk to IGas’ coal bed methane assets, which offered an “attractive exposure to unconventional gas assets in the UK”.

Goldman initiated coverage with a 'buy' rating, targeting 119 pence within 12 months.

In the research note, Goldman said that even conservative estimates highlight the stock’s significant potential, given the large reserve size.

“[Independent reservoir evaluation company] Equipoise has estimated that gas in place net to the company is almost 4 trillion cubic feet, although a study by DeGolyer and MacNaughton has put 2C reserves at just over 800 billion cubic feet - taking into account that access to the gas will not be obtained in certain areas of the acreage,” said the report.

In a note to clients Goldman said that IGas offers attractive exposure to unconventional gas assets in the UK.  

“Development of the company’s resource base should begin to de-risk the assets and improve sentiment, especially if the company continues to be successful in obtaining planning permission for access to the resource.” 

The major investment banking group initiated its coverage on IGas with a ‘Buy’ rating, targeting 119 pence within 12-months.

The market is applying excessive risk to IGas Energy’s (LON:IGAS) coal bed methane assets, according to research by Goldman Sachs.

In a note to clients Goldman said that IGas offers attractive exposure to unconventional gas assets in the UK.  

“Development of the company’s resource base should begin to de-risk the assets and improve sentiment, especially if the company continues to be successful in obtaining planning permission for access to the resource.” 

The major investment banking group initiated its coverage on IGas with a ‘Buy’ rating, targeting 119 pence within 12-months.

In the research note, the analyst said that even conservative estimates highlight the stock’s significant potential, given the large reserve size. 

“[Independent reservoir evaluation company] Equipoise has estimated that gas in place net to the company is almost 4 trillion cubic feet, although a study by DeGolyer and MacNaughton has put 2C reserves at just over 800 billion cubic feet - taking into account that access to the gas will not be obtained in certain areas of the acreage.” 

In its valuation Goldman takes a very conservative approach, discounting several factors, however it still sees substantial upside to its valuation. 

“We believe IGas has attractions as an acquisition candidate as a faster ramp up would allow faster realisations of cash flow, potentially adding up to 33% to our base case valuation,” Goldman told clients.

“The company also has access to shale gas on its acreage. We are bullish on European gas prices in the medium term and view the risk/reward in the stock as attractive.

“The stock offers attractive exposure to an emerging gas technology with direct proximity to a politically stable domestic market.”

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In the research note, the analyst said that even conservative estimates highlight the stock’s significant potential, given the large reserve size. 

“[Independent reservoir evaluation company] Equipoise has estimated that gas in place net to the company is almost 4 trillion cubic feet, although a study by DeGolyer and MacNaughton has put 2C reserves at just over 800 billion cubic feet - taking into account that access to the gas will not be obtained in certain areas of the acreage.” 

In its valuation Goldman takes a very conservative approach, discounting several factors, however it still sees substantial upside to its valuation. 

“We believe IGas has attractions as an acquisition candidate as a faster ramp up would allow faster realisations of cash flow, potentially adding up to 33% to our base case valuation,” Goldman told clients.

“The company also has access to shale gas on its acreage. We are bullish on European gas prices in the medium term and view the risk/reward in the stock as attractive.

“The stock offers attractive exposure to an emerging gas technology with direct proximity to a politically stable domestic market.”