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Cluff Natural Resources excited about potential of Britain's stranded coal reserves

Anna Obolenskaya, chief financial officer of Cluff Natural Resources, says the huge potential of underground coal gasification could transform Britain's energy market.
Cluff Natural Resources excited about potential of Britain's stranded coal reserves

It is many decades since king coal offered the solution to Britain’s energy needs. Its prevalence as a fuel began to wane in the smog-filled 1950s with the dying embers of a once mighty industry extinguished in the 1980s.

However, today, three decades after the closure of the pits, it is being offered up as a solution to the nation’s looming energy crisis.

“The United Kingdom is well placed within Europe in having large reserves of indigenous coal both onshore and offshore in the southern North Sea,” points out the UK’s Coal Authority, now part of the Department of Energy and Climate Change.

“These reserves have the potential to provide security of future energy supplies long after oil and natural gas are exhausted.”

The key to commercialising the nation’s vast beds of fossil fuel is a process called underground coal gasification (UCG) – a discrete, environmentally friendly method of liberating the energy content of the coal. What’s created is a synthesis gas, or Syngas.

The process uses directional drilling techniques that are commonplace in the oil and gas sector to follow the coal seam. But crucially it doesn’t involve deploying the fracking technology that has been vilified despite transforming the US gas industry.

The UK resource suitable for deep seam UCG is estimated at 17 billion tonnes, or 300 years' supply at current consumption, according to a Department of Trade & Industry report.

Linc Energy in Australia and AIM-listed Wildhorse Energy, with its Mecsek Hills Project in southern Hungary, are two quoted firms blazing a trail in this specialist sector of the hydrocarbons industry.

One facility in Uzbekistan has been supplying syngas to a power plant for over 40 years. But it is the development of new drilling techniques that has made the exploitation of UCG possible.

Here in the UK, Cluff Natural Resources (LON:CLNR) is exploring the potential of UCG. On January 14 it announced it had been awarded two licences covering 111 hectares of Carmarthenshire and the Dee Estuary, on the North Wales/Merseyside border.

It is fitting the company, led by the serial entrepreneur Algy Cluff, is at the forefront of this new energy revolution, for he was one of the first to recognise the enormous potential of the North Sea in the early days – and this was reflected by the success of his company Cluff Oil.

This isn’t some part time role for Cluff, who is as energetic as ever as he barrels between meeting rooms. He is deadly serious about proving the huge potential of UCG and building a significant new business.

“Algy is very much driving the company,” said the company’s chief financial officer Anna Obolenskaya. “He is a great leader and keeps everyone on their toes.”

The energy and desire that has helped him create multiple success stories (the last being the gold junior Amara) is still there too it seems.

“He is in the office by 8am and no day is the same with Algy,” said Obolenskaya.

“He has a great sense of humour and I am very much looking forward to seeing what the next 12 months will bring. It is exciting.”

Those who thought the great British investing public might struggle to comprehend the potential of UCG will be surprised at the market’s reaction to January’s licence awards.

The stock has advanced more than 40% in one week.

“We think we are in a really exciting space at the moment,” said Obolenskaya.

“What we hadn’t realised before we made the announcement is how receptive the investors would be about UCG.

“We were pleasantly surprised. From a Cluff Natural Resources point of view we thought it was an amazing idea, something we would focus on long term.

“But with the investors on our side we will concentrate on this in the short and medium term as well as it being part of long-term plans.”

The short term plan is to carry out a scoping study on the licences and identify an area for test production.

This will allow the group to hone the techniques and understand the technologies required to efficiently get the gas out of the ground. And of course there is the permitting process to negotiate.

The idea is to bring the expertise required in house, while it will also work with leading universities, Obolenskaya reveals, suggesting the group is taking a very methodical approach to building long-term value here in the UK.

“The reasons we applied for these particular licences is because of their geological and operational merits. We did a lot of research to identify these sites. There is a large amount of geological data we can analyse, but it is not just the geology; we think there will be a market for the syngas in the area,” said Obolenskaya.

One of the other challenges will be managing the perception of UCG – ensuring that people realise that it very definitely does not involve fracking.

In fact this in-situ gasification of coal, which is done hundreds of feet underground, will have minimal impact on the local landscape. On the surface will be a small injection well and one extracting the syngas.

“We want to talk to people about the wider picture and educate the public on UCG – we don’t want people confusing it with for example coal bed methane or other unconventional gas,” said Obolenskaya.

“This doesn’t involve any fracking, or anything that will affect the local population or environment.

“We want everyone to be aware of what UCG can bring to the country, which is a secure and clean energy source.”

The group listed on AIM as a cash shell in May and investors had expected Cluff to return to his roots by acquiring North Sea assets.

However, the chairman said in a recent interview the move into UK coal gasification was ‘entirely consistent’ with the company’s strategy – and presumably cheaper than picking up offshore projects.

And in the same interview he hinted there may be other potential deals on the horizon – either in the UK or Africa.

According to Obolenskaya these transactions are likely to be funded using paper, conserving the estimated £2.5mln the group currently has on its balance sheet.

This represents around two years’ worth of funding of general expenditure and alleviates the perception that Cluff Natural Resources is ready to tap the market for more cash.

“The acquisitions we are looking at are pure paper, so we will only be buying assets with our own shares,” said Obolenskaya.

“Because our stock is quite desirable we can do this. Companies believe they will get a lot of value from our stock. We won’t be asking shareholders for cash to fund new acquisitions any time soon.”

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