French petrochemicals major Total has announced its decision to 'farm-in' into two shale gas exploration licenses in the UK Midlands currently operated by eCORP of the US, giving a boost to the government's efforts to recreate a US-Style boom in the sector.
That is the third transaction recently in the UK shale exploration sector involving a utility major, following Cuadrilla Resource's 'farm-out' agreement with Centrica and a 'farm-in' deal between Dart Energy and GdF.
Total will acquire a 40% interest in UK licenses PEDL 139 and PEDL 140, covering an area of 240 square kilometres of the Gainsborough Trough, a geological basin that is part of the Pendleian Shale in Lincolnshire, for a total 'cash and carry' amounting to $48.1m.
eCORP's partners include Dart Energy and UK-listed outfits IGas and Egdon Resources.
Post the mid-2014 'farm-out' completion IGas and Egdon Resources will both have a 14.5% working interest in those liceneses.
The above mentioned permits border IGas' existing PL 178 and PED L006 liceneses at Beckingham, an existing IGas producing field.
Under the terms of the agreement Total will pay $1.6m in back costs to the pre-existing partners and fund a fully-carried work programme of up to $46.5m. The minimum commitment stands at $19.5m.
The French company is to become the operator of the licenses at the end of the carried work programme.
The implied metrics per acre are $560/acre firm and up to $1244/acre if the full contingent carry is spent, analysts at Jefferies pointed out.
Further commenting on the implications of the deal for IGas analysts, the broker said: "We view this transaction as positive for IGas, signifying another global energy utility committing to the UK shale industry. This acreage was previously of less focus for IGas than its East Midlands acreage.
"Our 140p/share risked value for IGas' UK shale exposure implies a value per acre of $1,260/acre on its East Midlands acreage only. Given the much less technically advanced nature of this block, we believe the metrics paid by Total are supportive of our valuation for IGas' shale resources, which we do not believe is reflected in the current share price."
IGas also announced on Monday its intention to apply for permits for the acquisition of extensive 3D seismic surveys across a number of licence areas.
Acting as a backdrop, on Monday David Cameron was reportedly set to promise business rate windfalls to councils that approve shale gas projects in a bid to quell unrest in Tory heartlands about the impact of fracking.
As of 10:32 shares
of IGas were rising by 9.74% to the 118.25p mark. Stock in its much smaller rival, Egdon Resources, were advancing 37.33% to 12.88p.