LONDON (Reuters) - Total has become the first major oil and gas company to strike a deal to explore for shale gas in Britain, boosting a technology which has brought cheap energy to the United States but sparked protests by environmentalists and local communities.
The French group said on Monday it had bought a 40 percent interest in two licences in the so-called Gainsborough Trough area of northern England for up to $48 million.
Total’s involvement, which follows shale gas deals by utilities Centrica and GDF Suez, puts Britain firmly on the map as one of Europe’s strongest prospects for the development of unconventional oil and gas resources.
The investment is tiny in industry terms, but experts say it paves the way for similar moves by other top oil and gas firms.
“We expect further international energy companies to follow the lead taken by Total (...) and ramp up their plans for signing ‘farm-in’ agreements with UK firms that already have licences to explore UK shale reserves,” said Glynn Williams, partner at Epi-V, an investor in oil and gas services.
However, shale gas extraction or “fracking” - using chemicals, water and sand injected underground at high pressure to fracture rock formations and release the gas - is bitterly opposed by environmentalists who fear it could pollute water, blight landscapes and add to global warming.
Last summer, Britain saw protests erupt in the south of the country as local communities expressed opposition as well.
Britain’s shale gas resources are estimated at more than 400 times the country’s annual gas consumption and the government has thrown its weight behind exploration at a time when rising energy prices have become a hot political issue.
In the United States, shale gas exploration has transformed the energy market, caused prices to collapse and set the country on the path towards energy independence.
Tighter planning and environmental regulation, and denser population, mean Britain is unlikely to see a shale gas boom of the kind experienced in the United States.
Nonetheless, the British government supports shale gas exploration as a way to reduce the country’s growing dependence on gas imports and to increase revenues.
It has allowed handsome tax breaks for companies involved in the nascent industry and promised financial benefits to local communities affected by shale gas exploration.
The government also announced on Monday that local councils will be able to keep all of the business rates to be received from shale gas sites, instead of 50 percent currently given, amounting up to 1.7 million pounds per site.
“A key part of our long-term economic plan to secure Britain’s future is to back businesses with better infrastructure. That’s why we’re going all out for shale,” Prime Minister David Cameron said, announcing the new rates.
The British government’s support for shale gas makes it one of Europe’s most attractive markets for unconventional oil and gas drilling as others, such as France and Germany, have imposed moratoriums on the activity.
“It’s ironic that a French-owned company is seeking to drill the UK for shale gas when it’s banned from fracking in France due to environmental concerns,” said Jane Thomas, senior campaigner at environmental group Friends of the Earth.
France’s constitutional court in October upheld a ban on hydraulic fracturing for shale oil and gas.
Poland, which also actively encourages shale gas exploration, has seen a raft of oil and gas companies withdrawing from its programme due to poor drilling results and an uncertain legal landscape.
In contrast, Britain’s first shale gas is planned to flow by the end of this decade and growing momentum behind the shale gas race is expected to attract other big names to the UK market.
Following last summer’s protests against shale gas, the government promised improved benefits for communities affected.
Communities are expected to receive 100,000 pounds ($164,800) in compensation as well as a separate fund established by the developer equalling 1 percent of revenue per shale gas well drilled. The compensation scheme starts when exploratory drilling begins.
France’s GDF Suez bought shale gas licence stakes in a partnership with Dart Energy in October and Britain’s Centrica entered the race in June.
Having Total as a partner will be a feather in the cap of industry minnows Dart Energy, Egdon Resources, IGas and eCORP Oil & Gas UK Ltd, with which Total will partner on the two projects in northern England.
Britain’s IGas will be the operator of the initial exploration programme and Total will take over ownership of the projects as they reach the development phase, the firms said.
The news confirms a weekend Reuters report.
Shares in the small-cap firms climbed in morning trade, with Egdon Resources up 45 percent, IGas 13 percent higher and Dart Energy also up 13 percent. Total shares were off 0.6 percent.
Additional reporting by Sonali Paul in Melbourne, Leila Abboud in Paris and Paul Sandle in London; Editing by Mark Potter