IGas Energy Plc (LON:IGAS) expects to start new shale drilling in the UK before the end of this year, and it is now looking at sites in the North West for its next projects.
It has been an early mover in UK shale, securing high potential acreage and bringing in major partners, but the emerging sector has been held back due to slow progress at local government level, in the planning process.
Recent breakthroughs, in 2016, saw IGas and its partners secure planning permission for two well sites in the Gainsborough Trough, in the East Midlands.
The wells will be paid for by IGas’s partners, as part of the US$230mln of work pledged in prior farm-out deals, and the company expects exploration wells will be spudded at these sites during the second half of the year.
WATCH: IGas chief 'looking forward to getting on' with East Midlands drilling
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IGas, meanwhile, has been evaluating seismic exploration data gathered across North West England. It is now “moving forward” with site selection and is advancing preparations ahead of the planning application process.
“We look forward to the next 12 months with confidence as both IGas and the wider industry start to drill and hydraulically fracture shale gas appraisal wells and collect important data for the future development of the UK shale industry,” chief executive Stephen Bowler said in the company’s financial results statement.
IGas “well positioned” after hitting financial reset
On a corporate level the group’s recent financial restructuring was the main point of discussion in the results statement.
The US$120mln restructuring saw the group exchange US$40mln of debt for new equity, in addition to a US$49mln bond buy-back and amendments to the terms for the remaining US$30mln of bonds.
At the same time, new investment came from strategic investor Kerogen Capital – a private equity group that’s taking interest in a number of UK focussed energy assets – which put in US$35mln in exchange for 28% of the company.
Bowler today told investors that IGas is now “positioned strongly for the future” as a result of the restructuring.
“We have a healthy balance sheet, supported by operating cashflow from our production assets, which will enable us to focus on delivering the significant potential of both our production and development assets and provide a solid foundation for the longer-term future of the company,” he said.
Conventional production forecasts
Aside from the shale business, IGas produced an average of 2,355 barrels oil equivalent per day from its conventional oil assets onshore UK, falling slightly short of the targeted range of 2,400 to 2,600 boepd. In the year, the group’s operating costs amounted to US$28.8 per barrel and it reported an average pre-hedged realised oil price of US$44.1 per barrel (after including the impact of hedging it rose to US$58.1 per barrel).
IGas generated £30.5mln of revenue in the year, including £3.3mln from the sale of third party oil.
The company reported earnings of £10.2mln, albeit it marked a £31.8mln loss from continuing activities after tax – including £11.4mln of administrative expenses (up from £6mln the year before) and a £4.5mln write-off to exploration assets.
Looking to 2017, the company is forecasting conventional production of 2,500 bopd and operating costs of US$25 per boe which in current market conditions will make the business cash generative.
Boardroom changes
IGas confirmed, in a separate statement, that chairman Francis Gugen will step down in June and he will be replaced by deputy chairman Mike McTighe.
Senior independent non-executive director John Bryant will also retire from the board, and two appointees of Kerogen Capital - Philip Jackson and Tushar Kumar – will join the board.
Additionally, with the aim of reducing the size of the board, chief operating officer John Blaymires and chief financial officer Julian Tedder will step down from the PLC board – though they will both remain directors of IGas’s operating subsidiaries and will continue in their executive roles.
McTighe in a statement said: “I am delighted to be taking over the role of Chairman of IGas at this important stage of its evolution.
“IGas is in a strong financial position following the recent successful refinancing and can now capitalise on opportunities in its production and development assets at a time of increasing momentum in the UK shale industry.”