The Marriage Of Landowners And Upstream Companies – A Match Made In (Unconventional) Heaven

A recent news article about the partnership between Scottish Power, owned by Spain's Iberdrola, and UK’s Egdon Resources to tap shale prospects in acreage held by the former has generated a lot of interest within the E&P space in the United Kingdom. This partnership is propitious, not so much about the fact that a power generator is now moving upstream along the value-chain to tie in its gas supplies, but because an industrial house is putting to use its acreage for exploration and production activities.

Whist land may seem to be the least problematic link in the chain of operations for an unconventional project, in places other than North America this is a particularly sticky topic for most project managers trying to extract either CBM or hydrocarbons from stubborn shale formations beneath the ground.

Even when the availability of land is identified as a major hindrance, the root of this problem varies from one geography to another. In a place like UK, the concerns are mainly environmental with the entire philosophy of shale extraction being anathema to the Greens. In India, the availability of land is a major issue since most drill sites would sit on lush pockets arable land whose produce a poor farmer – and a developing hungry country can ill afford to forfeit in exchange for gas (or oil) molecules. In other places like Indonesia large tracts of land belong to varied indigenous populations who are loathe to see the influx of drilling crews and large machinery which they see as in-amicable to their local way of life.

Whatever the reason that a landowner, or his neighbourhood environmentalist, might have in letting go of his precious acres, obtaining that 8000 odd sq mtrs required to spud an unconventional well (s) is hard to come by in some (most) places around the world.

It is in such a scenario where an upstream company requires land which is either hard to come by, or comes with an assorted set of protesters and tree-hugging/ ply-card bearing/ traffic-obstructing intelligentsia, an easy to reach plot of land usually within a fenced industrial area and having basic infrastructure can act as manna for an project manager.

On an average a large industrial unit with spare acreage can add the following benefits towards a conventional drilling program:

              i.        A prime landowner will make available good quality drilling sites its land.

             ii.        An industrial unit will have good infrastructure connectivity in the form of used and unused pipelines in place.

            iii.        Existing water hydrants for water intake and WTPs/ evacuation pipelines for produced water an easy to install (if not already present).

            iv.        Communication/ fibre optic cabling are (generally) in place to link rig SCADA units

             v.        Significant offtaker of gas, (methane) for firing up plants but fertilizer and refinery complexes also use heavier molecules (Ethane/ Butane) as feedstock.

            vi.        Extensive goodwill will exist within the local community on account of having provided employment opportunities to the local populace.

 This is by no means the first shale land deal that has taken place in the UK (I list below past similar deals) and I know this will by no means be the last!

1- Centrica acquired a 25% interest in PEDL165 in Lancashire from Cuadrilla Resources Ltd and AJ Lucas for £40 million in cash. Centrica will also pay exploration and appraisal costs of up to £60 million.

2- GDF Suez acquired a 25% share in Dart's 13 onshore licences for $12 million with GDF also agreeing to meet Dart's share of exploration costs within the license areas up to an amount of $27 million.

3- Total acquired 40% interest in two shale gas exploration licences in Lincolnshire from IGas for $1.6m in back costs and will fund a work programme of up to $46.5m, with a $19.5m minimum commitment.