Headlines
- Comment: Preston New Road well fracking approval a positive, but still yet a lot to do, and the stakes are high.
- In Brief:
- Baron Oil*** (LON:BOIL) (0.48p) – Increased Interest
- Mosman Oil & Gas*** (LON:MSMN) (0.58p) – $9.80mm (1.63p) – Sensible Deferral
- United Oil & Gas* (LON:UOG) (5p) – Colter Draws Closer
Comment
Yesterday, Cuadrilla announced that it had been granted the approval to frack it’s Preston New Road well in Lancashire, which is good news for the Company and industry alike. Shamefully, this news can’t be heralded without the sanguine warning of what faces the UK in the future if we fail to capitalise on any successful testing of the Bowland.
Admittedly, Cuadrilla’s well is only the first in what will need to be a number of wells that will be needed to test the prospectivity of the Bowland shale, this is at least a start. Estimates suggest that at current consumption growth rates and decline rates in existing production, that the UK will import 600 TWh a year of gas in 2030, costing some £12bn annually, none of which will yield revenues for the UK Government. This is just the estimate of the delivered cost, transport, financing and storage margins will need to be factored when assessing the additional cost (over and above that of domestic production) to consumers.
To our mind, this is why energy security matters, and why the Bowland Shale is a potentially a key element in all of this. We say potentially, because as we have seen with other shale series internationally, it is by no means certain that a shale series, just by fracking, will produce its hydrocarbons, commercially or otherwise. As a result, this well will need to be followed up with others to fully test the Bowland, which when coupled with the analysis, means that even if the Preston well is an unmitigated success, it will be at least another 5 years before the answers are definitive with respect to the overall prospectivity of the UK’s shale sequence.
That puts a declaration of commerciality optimistically at 2023. Add in supine ministers or parliamentary horse-trading and that number could easily double to 2028. Arguably the UK is already too late to avert the impending energy security and economic catastrophe, but at least the Preston New Road well is a step in the right direction.
Successive governments have been virtue signalling on fracking and oil and gas for years, but it’s now time for the UK government (from the ministers downwards) to start to put fact and science before hype and hyperbole (mostly based on skewed data sets and wilful misinterpretation of the identified studies), and put energy security higher up the agenda. Consequently, while yesterday's announcement is good news, that is has taken so long to get this far is a disgrace on a national scale, and today’s news needs to be put in the context of the scale of the failure thus far.
In Brief
- Baron Oil*** (LON:BOIL) (0.48p) – Increased Interest: Today’s news, that the Company has increased its interest in Colter, to our mind, is welcome news. While we are currently assessing the value of the Company’s interest in the asset, we believe that the modest increase in obligation accompanying the increased working interest and higher estimates for the well, are more than offset by our estimate for the higher working interest related increase in risked value. We believe that investors should be pleased with today’s update from the Company.
- Mosman Oil & Gas*** (LON:MSMN) (0.58p) – $9.80mm (1.63p) – Sensible Deferral: Today’s update is a sanguine and measured approach to the circumstances that the Company currently faces on its asset. We believe that in waiting for the outcome of the data, the Company will be better able to base their assessment of the performance of the play on fact, rather than “hope.” Following today’s news, we see no reason to amend our valuation of $9.80mm (1.63p).
- United Oil & Gas* (LON:UOG) (5p) – Colter Draws Closer: Today’s news, that the well cost has increased while tempting to perceive it as a headwind, is a manifestation of the fact that the project is entering the execution phase. We would expect that the Company, along with the other participants in the well, will be able to announce a spud date soon.
We may provide a further update on one, or all, of the stories above later today. However, if there is anything that you would like to discuss, please feel free to contact us