Working together, IGas (LON:IGAS) and INEOS are aiming to unlock the potential of Britain’s untapped shale gas resources.
The new partners are about to embark on a two-phased programme of investment, which will include six shale gas wells in the coming years.
In the first phase of investment, over the next two and a half years, IGas and INEOS intend to drill three un-fracked verticals, one fracked vertical and two fracked horizontal wells.
The INEOS-led investment programme will also include the development of gas processing, as well as broad seismic exploration work (using both 2D and 3D).
The second phase of the investment programme will include a further five wells - two vertical, three horizontal – and additional gas processing facilities.
Under the terms of the new partnership, announced on Tuesday, INEOS will cover £65mln of IGas’s share of the costs.
INEOS is also paying £30mln in cash upfront to IGAS and it will invest a total £138mln in the programme.
“This is a significant deal for UK shale development and for IGas, as it underpins the quality, scale and potential of our licences,” chief executive Andrew Austin told Proactive Investors.
“This transaction, together with our existing partnerships with Total and GDF, reinforces the potential and materiality of our portfolio to world class counter-parties and strongly positions us as we seek to work together to unlock the potential of our untapped natural gas resources in Britain.”
“The combination of INEOS’s scale and asset position across the UK coupled with our experience as an onshore operator with significant shale acreage is a strong collaboration.
“INEOS is a significant user of gas both as a fuel and as a primary feedstock – they believe shale gas could revolutionise the UK manufacturing industry.”
INEOS currently imports gas produced from US shale for the Grangemouth petrochemical operation, on the banks of the Firth of Forth, in Scotland, though the company recently said this was not a sustainable long term solution.
With the IGas deal it has taken a step closer to sourcing UK shale gas resources. According to Ineos Upstream chairman, Gary Haywood, this could potentially enable the Grangemouth petrochemical plant to ‘make sense’ in the future.
INEOS in 2013 controversially moved to close down the Grangemouth plant, putting thousands of jobs at threat, though deals were later reached with the Scottish government and unions to keep the operations going.
Haywood, at a conference in Scotland last month, said it would be feasible for UK shale gas production to be up and running within three to five years.
And in a statement accompanying the transaction he said: “INEOS believes that an indigenous shale gas industry will transform UK manufacturing, and that we can extract the gas safely and responsibly.”
Haywood described the new partnership with IGas as "a great opportunity" and said INEOS’s scale and US shale experience was a perfect match for IGas’s portfolio of assets.
INEOS, as a result of the IGas transaction, will now acquire all of IGas’s PEDL 133 licence in Scotland.
In the North West of England INEOS will acquire 50% interest in four licences (PEDL, 147, 184, 189, and 190) and 60% of three others (PEDL 145, 193 and EXL 273).
It will also have an option to acquire 20% of two licences in the East Midlands.
IGas is currently working through a consultation process in the planning for wells in the Midlands.