Shale development opportunities in the UK have attracted Total, which has become the first major and largest company to enter the region’s shale gas licenses.

The company announced Monday that it acquired a 40% interest in two shale gas licenses covering 240 sq km (93 sq miles) in the Gainsborough Trough area of the UK’s East Midlands region. As part of the agreement with Dart Energy, Total will pay US $1.6 million in back costs and earn interest in the licenses in return for funding a shale work program of up to $46.5 million.

The program will include acquiring 3-D seismic, drilling and testing a vertical exploration well and associated well pad construction, and drilling a second appraisal horizontal well, if the exploration well test is successful, according to Dart Energy. At the conclusion of the carried work program, Total will become operator of the licenses. Until then, IGas Energy, which operates a producing field near one of the license areas, will be the operator.

The exploration and development licenses are in the Bowland shale, which could hold approximately 37.6 Tcm (1,329 Tcf) of gas in place, according to the British Geological Survey.

“This opportunity is an important milestone for Total E&P UK and opens a new chapter for the subsidiary in a promising onshore play,” Patrice de Viviès, Total’s senior vice president for northern Europe, said in a news release. “The group is already involved in shale gas projects in the US, Argentina, China, Australia, and in Europe in Poland and in Denmark and will leverage its expertise in this new venture in the UK.”

Stimulating Interest

Total’s entry comes as the UK continues working to encourage companies to develop its shale resources.

The incentives include slashing the tax rate for a company’s production income from 62% to 30% and simplifing the application process through the Environmental Agency by creating a single application permit form. The form is intended to lower permitting times for low-risk activity from 13 weeks to about two weeks, according to the UK government.

News of Total’s agreement also came on the same day that British Prime Minister David Cameron announced councils will be able to keep 100% of the business rates collected from shale gas sites. The percentage is double the current amount and represents a commitment worth up to about $2.8 million (£1.7 million) a year for a typical site. This is in addition to announcements last year that communities would get about $163,768 (£100,000) when a test well is fraced and another 1% of revenues if shale gas is found.

“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,” Cameron said in a prepared statement. “It will mean more jobs and opportunities for people and economic security for our country.

Energy Minister Michael Fallon added, “We already knew that the development of shale gas could bring growth, jobs, and energy security to the country, and now local councils and people will benefit from millions of pounds of additional investment.”

However, the potential for money to flow into communities hasn’t quelled concerns surrounding hydraulic fracturing, the process that, when coupled with horizontal drilling, has led to success in the US but has brought out protestors who fear groundwater contamination. Oppositional forces have proven they can impact operations. Cuadrilla Resources was forced to temporarily scale back drilling operations at its Balcombe site in 2013. At the time, exploration work involved drilling a conventional oil well, but anti-fracing protests proceeded.

Shale Challenges

Oil services investor Epi-V, which has experience in the international fracing industry, pointed out that obstacles remain for the UK shale gas industry.

“While news that Total is entering the UK shale arena and that councils will be allowed to keep 100% of business rates from [fracing] sites is positive, the government has yet to address the vital issue of the huge funding requirements for developing the supply chain for the UK shale gas industry to ensure that all the jobs promised are created and more importantly that they go to domestic oil and gas services businesses,” Glynn Williams, partner at Epi-V, said in a note.

Williams suggested the government consider shale-targeted funding schemes to “help give service suppliers the finance and confidence to commit the substantial levels of investment in personnel and equipment required.” Technological support is needed, and this could provide an opportunity for developed shale markets, particularly in the US.

While Total will be new to the UK shale scene, joining companies such as Cuadrilla and Centrica Energy, it has shale experience elsewhere, including in the US. The company acquired interest in the Barnett shale in 2009. About two years later the company acquired a 25% stake in the Utica shale play.

Total’s farm-in deal is expected to be complete by June 30, 2014, the company said. Once complete, Total E&P UK Ltd. will hold 40% interest in the licenses, while Dart subsidiary GP Energy Ltd. will hold 17.5% interest. Island Gas Ltd., a subsidiary of IGas, will hold 14.5%; Egdon Resources UK Ltd., 14.5%; and eCorp Oil & Gas UK Ltd., 13.5%.

Contact the author, Velda Addison, at vaddison@hartenergy.com.