Total’s £30m deal boosts UK shale gas hopes

Total yesterday became the first major oil and gas company to strike a deal to explore for shale gas in a move seen as a significant boost for the industry.

Total will fund a 46.5m dollar exploration programme. Picture: PA

The French group confirmed it has bought a 40 per cent interest in two licences in Lincolnshire owned by Dart Energy for up to $48 million (£30m).

The announcement came as the oil and gas industry launched a major study into the supply chain and skills needed to develop the sector.

Under the Total deal with Dart, it will pay $1.6m in costs relating to previous work at the site and will fund a $46.5m exploration programme.

Glynn Williams, a partner at Epi-V, an oil and gas services investor backed by Lloyds Development Capital, said: “It will take billions to fund the development of the UK shale industry and Total’s announcement is a further significant step in making it a reality.

“The entry of a major such as Total into the UK shale arena will give a significant boost to the nascent shale gas supply chain and help to give operators and service suppliers the confidence to commit the substantial levels of investment in personnel and equipment required.”

But Warwick Business School Professor of Practice David Elmes said that, although the involvement of one of the world’s major oil and gas companies “has been seized on by the government” it was important to put the announcement into context.

“Their investment is a tiny part of their investment budget for 2013. This reflects that it’s still early days in understanding how much shale gas the UK has and what can be produced commercially. There’s a need to proceed carefully to answer that question.”

The supply chain and skills report will be funded by the UK Onshore Operators Group (UKOOG) trade body and the UK government and will be compiled by accountancy firm EY.

Ken Cronin, chief executive of UKOOG, said the development of a robust UK onshore oil and gas supply chain will improve the economics of projects being developed.

“We have a huge opportunity of creating that supply chain here in the UK, this study is the first plank in ensuring that this happens and that the UK fully benefits from the natural resources below our feet in terms of investment and jobs.”

In a further announcement yesterday, local councils in England and Wales that allow shale gas developments were told they can keep 100 per cent of the business rates collected from the sites under a UK government move.

But David Ross at lawyers Pinsent Masons said that, as business rates were a devolved matter, Scottish councils will not benefit in the same way unless the Scottish Government makes a similar declaration.