Excitement over Britain’s increasingly high profile, yet early stage, shale gas industry has stepped up another gear.
Within months of blue-chip energy firms making an entry into the nascent shale gas sector, a share based deal between IGas (LON:IGAS) and Dart Energy (ASX:DTE) sees the consolidation of two of the play’s largest acreage positions.
IGas agreed to buy Dart Energy through a premium-priced, recommended share-based deal worth £117.1mln.
Together the firms have over 1mln acres in Britain’s major shale basins, and IGas chief executive Andrew Austin says the deal puts the enlarged company “at the heart of unlocking Britain’s energy potential”.
“This is a British success story establishing IGas as a key contributor to UK energy mix and security,” Austin said in a stock market statement.
“The transaction further strengthens our position financially, operationally and also significantly increases our licenced acreage as we seek to unlock the untapped energy resource that exists in Britain."
Dart chief executive John McGoldrick says the merger heralds a new era for the UK gas industry, as it creates a business of scale.
“Success in the oil and gas business comes from scale, and the combination of Dart and IGas achieves that scale, creating a clear market leader with a vastly greater depth in terms of asset base, access to capital and operating capability, all of which will be critical to achieving long-term success.
McGoldrick considers the emergence of the UK’s shale gas industry will be one of the defining energy market stories of this century, and he said today’s share-based deal is in the best interests of Dart shareholders as it allows them to participate in this the long-term value creation potential.
Dart shareholders, who were set to access the London market with an AIM float this month, will hold around 30% of the merged company.
Investors will receive 0.08117 IGas shares for each Dart share they own, which equates to 18.98 Australian cents per share and is a premium of around 51% to Friday’s close on the ASX.
Crucially, the acquisition consolidates common interests in shale licenses that are now partnered with large oil and gas companies. The enlarged company has 13 licences that are being funded by GDF Suez, and two licences funded by French major Total.
In February, Total completed a deal acquire a 40% of licences in Nottinghamshire and Yorkshire, in return for commitments to pay for drilling in the future. The consolidation of the respective interests of IGas and Dart will give the enlarged company a 32% stake in those licences.
Meanwhile, via a farm-out agreed with Dart in October, GDF Suez paid almost US$40mln in cash and committed to drill programmes, in order to secure 25% of 13 licences.
The transaction also comes at a significant time, as drilling activity is expected to step up considerably in the coming years and the government will soon auction off new prospective shale gas licences through a onshore bidding round.
Indeed, just yesterday, the fledgling sector received further encouragement from the British establishment as a House of Lords’ economic affairs committee said the advantages of shale gas hugely outweigh the disadvantages, and recommended a number of measures that would see the government provide more support.
The industry should be treated as a ‘national priority’. It comes after prime minister David Cameron called on the UK to go “all out for shale”.
“Exploration and appraisal are urgently needed to establish the economic potential of the UK's shale gas and oil resource,” the House of Lords report said.
“Shale gas is not the answer to all the energy policy challenges facing the UK. Substantial economic benefits would however flow from successful development.”
“It would reduce imports and help maintain security of supply.”