France’s Total SA said Monday it had bought a 40% stake in two shale-gas exploration licenses in the U.K., marking the first time one of the world’s major oil companies has turned its attention to Britain’s unconventional gas reserves, reports The Wall Street Journal.
The move is a tiny one by global energy industry standards—representing an initial investment of under $50 million, according to people familiar with the matter. Total didn’t announce Monday the amount it plans to invest. But Total’s decision is a significant vote of confidence in Britain’s shale-gas prospects, and could be a boost to the government in London, which has sought to lure big companies to develop shale.
The U.S. has seen an explosion in gas development, thanks to advances in extraction and drilling techniques, including horizontal drilling developments and hydraulic fracturing, or fracking, of wells. Both techniques have made pumping once hard-to-reach reserves economically viable.
Similar reserves of shale gas sit elsewhere in the world, including in the U.K., though development of these reserves outside North America has been slow. In Britain, protests and local opposition have slowed shale-gas development.
After the transaction, Total’s partners in the shale-gas venture will be Dart Energy Ltd., Egdon Resources PLC, IGas Energy PLC and eCORP International LLC, Total said. Dart will retain a 17.5% stake, while IGas and Egdon will keep 14.5% each and eCORP will retain 13.5%.
Total will take over the operatorship “some time before the development phase is over,” one of the people familiar with the matter said.
Total is planning to spend about $45 million in drilling for appraisal in the two licenses, the person also said.
The deal was reported earlier by the Financial Times.
U.K. Prime Minister David Cameron said on Monday that local authorities that allow shale-gas development to go ahead will be able to keep the entirety of business taxes they collect from shale gas sites, up from the current 50%. This commitment will be directly funded by the government, the prime minister’s office said in a statement.
Total joins French utility giant GDF Suez SA and U.K. utility Centrica PLC, which last year bought interests in shale licenses in northwest England. French energy companies are eager to get involved in shale, but are unable to do so in France, where fracking is banned.
The move comes as smaller companies gear up their shale-gas exploration programs in the U.K. and as the government prepares for an onshore licensing round this summer that is expected to draw in several new and bigger players to the industry, including U.S. shale companies.
Total Chief Executive Christophe de Margerie told The Wall Street Journal in October that the company was considering bidding for U.K. licenses.
Inspired by the U.S. shale-gas boom that has lowered North American energy prices and helped to reinvigorate the economy, the U.K. government sees shale gas as a way to boost the nation’s energy security and offset declining natural-gas output.
But progress has been slow as supportive government policies and attractive tax incentives have bumped up against strong local opposition to fracking, the controversial technique of blasting water and chemicals into rock to release the gas.
Read more of this report from The Wall Street Journal.