IGas Energy: Harnessing the UK's CBM Resources

Coal bed methane (CBM) production is booming around the world accounting for a sizeable proportion of gas production in the United States, Canada and Australia.  However, the resource remains under reported on and underdeveloped on the European market.  Natural Gas Europe spoke to one firm forging ahead in CBM as it stands on the cusp of success in coal-bed methane production in the UK.

Last year was a defining year for London-listed CBM-focused IGas; 2011 saw the acquisition of two companies, Star Energy and Nexen Exploration UK, a move that bolstered IGas’s standing on the UK market. With results due this month on both a CBM drilling operation at the Doe Green field in Warrington, England and on a shale find at the Ince Marshes well, adjacent to where Cuadrilla Resources estimates reserves of two trillion cubic feet, April could see IGas taking a leap forward on the UK domestic market.

Though other companies would find the urge to expand into other countries on the back of such success irresistible, IGas has instead decided to play to its strengths and to focus on the country it knows best. Keeping the business local is what drives the business and its successes, CEO Andrew Austin told us and he foresees this remaining the same in the future.

“We understand land and planning and the Environment Agency [UK] and other stakeholders that we need to work with in the UK,” he says. “That’s what puts us in a good position for our conventional assets; that’s what puts us in a good position for our shale assets and our CBM. That’s all we work with is the UK-based stakeholders.”

He believes the company has used this knowledge to access and develop CBM in the market, though this is not without its challenges, he says. Despite UK coals having a higher permeability for CBM than major producer the United States, a higher gas price environment makes CBM production less attractive in Europe.

Despite the higher price environment, the company is currently one of the few in Britain making strides in CBM. So far, IGas has enjoyed great success on the Doe Green field, with two wells in production on the field currently. Two further wells, DG-3 and DG-4, have also been drilled in the past year and de-watered. They are currently being tested with an update expected within days.

Ahead of official analysis of the results, the company is courting favour, with leading stockbroker Numis last month predicting a leap in share price following the results. The stockbroker estimated that share prices would triple following the results, from 49.5 pence to 151 pence.

The company, it seems has found a niche in the market, achieving success where others have not ventured. It is because of prevailing misconceptions in the United Kingdom that lower exploration rates exists, Andrew explains, but IGas has found the happy medium between these misconceptions.

“I think you have one constituency of people [in Britain] who felt that you wouldn’t be able to produce from the coals but you could get land access. And the others thought that you couldn’t get land access, even if you could produce from the coals [so] two different schools of thought. Now the advent of horizontal drilling and the improved production techniques means that the UK is ripe for that.”

With gas demand in the UK growing and growing steadily decade-on-decade since the 1970s, the outlook for unconventional gases is positive. Despite accounting for just four per cent of energy consumption in 1970, according to the Department of Energy and Climate Change (DECC), by 2000 gas accounted for 41 per cent of all energy consumption in the UK. By 2010, overall gas consumption in the UK had grown from 14,408 million tonnes of oil equivalent in 1970 to 51,607 million tonnes.

This figure seems set to rise again with gas gaining even more prominence in the market. With this increased prominence, CBM will continue to grow in the UK, Mr. Austin says.

“Only yesterday we saw announcements from the government about the increased need for building gas-fired power stations. And obviously, the UK can have a much better place if they can have UK-centric production to satisfy UK demand. So it’s clearly got to be a better position for the UK if we can produce our own hydrocarbons and satisfy our demands from them.”

Outside of CBM production, IGas’s UK-centric focus has a strong benefit to a subject that can seem to be antonymous to gas producers—its carbon footprint. Speaking to Andrew Austin, you get the impression that environmental aspects of the business are a priority for IGas, one that fits into its focus in the United Kingdom.

When NGE asks about the company’s response to environmental concerns, Mr. Austin is emphatic about the positive implications domestically-produced gas has for the environment.

“If you’re talking about whether or not extracting further hydrocarbons can create increased climate change then that’s a complete misnomer on the basis that locally produced and consumed hydrocarbons have a lower carbon footprint than ones that are imported from other countries.”

Any fracking fluid used on the Ince Marshes’ shale (though a further course of action there has not yet been decided) will, in line with other operators, be disclosed to the Environment Agency. Any seismic activity will also be carried out in a way that will minimise any environmental impact, Mr. Austin says, and will be carried out in conjunction with the DECC and the Environment Agency.

Given the backlash seen in the media and public in recent years, it seems likely that IGas may soon join other companies in facing down opposition against shale. The company plans to deal with this by working with the community, the CEO says.

Although a decision on whether hydraulic stimulation will go ahead has not been made, he says that IGas has seen increased interest in the company and in shale overall in the UK.

“We’ve not made any decision as to whether or not or where we would frack if we fracked at all,” he says. “Our overarching condition is that we will only look at stimulating wells in ways which we can do in combination with the community to work in. We will be trying to find a way to make sure that everybody around us is comfortable with any activity that was carried out.”

A good relationship with the community will be essential to the company if it proves to replicate the success seen by Cuadrilla in the Holywell Shale (also known as the Bowland shale.)

“Obviously we need to see what the results of this are but we’re also combining that with the fact that we know that other people at the same basin have produced at rates which are probably some of the highest in Europe,” the CEO says.

“Cuadrilla’s results were 4,500 thousand standard cubic feet a day from a fracked vertical section which is a very high result. So, demonstrating that we got similar results equal to that is going to be a huge step forward.”

As the company moves ahead on the shale, the key to interacting with the public on the matter is to be a “good neighbour” to the community Andrew says, as IGas has always done.

“In any activity, whether it’s conventional or unconventional, you have to work with the community to basically carry out your activities which they’re comfortable with,” he says. “So you have to work with and be a good neighbour in those communities and we will continue to do that. Sometimes that’s a matter of education; sometimes that’s a matter of compromise. It’s a question of keeping everybody comfortable with what you’re doing.”

Mr. Austin is confident of the protection of the environment in his country and points to the UK’s strong record of checks and balances as the reason why a situation like Macondo [the site where the Deepwater Horizon oil spill took place in 2010] would not happen in the United Kingdom.

“If you turn back to Macondo, the North Sea had the same rules applied offshore as onshore in terms of well safety and well control, which is found to be best in class globally in terms of the rules that were in place. The UK has a very robust regulatory regime. We’re part of that and carry out our existing operations completely in accordance with those rules and regulations.”

Such diligence will see IGas through its upcoming period of transformation. With so many changes afoot for the company in addition to those made with its acquisitions last year, the company is managing to expand and grow on a trifecta of business operations.

“I think we’ve now got three very stable foundations to our business,” Mr. Austin says. “We’ve got our conventional business which produces 2,600 barrels a day of hydrocarbons and we have a distribution business to get those to market. Plus we have 1,811Bcf of gas discovered and a booked resource in CBM. We have a world class shale asset. So, I think the next year we’ll spend consolidating our position with those assets.”