The UK government has recently lifted the moratorium on the controversial drilling process known as fracking. Like it or loathe it, the touch-paper has been lit and companies are readying themselves to reap the benefits.
The scale of estimated economic benefit and political freedom that will come from being energy-independent means that this new industry will supervene. In a report just published, Ernst & Youngs predict that there will be over 4,000 wells drilled over the next 18 years and shale energy extraction is proposed to generate a £33bn of investment, creating 64,000 jobs in the UK alone.
More than 50 new land-based drilling rigs will be needed as well as 8,000 miles of steel casing and hundreds of pumps throughout the next decade. The report recommends that the industry takes action immediately to prevent bottlenecks building up across the supply chain.
For investors wanting to explore opportunities in this boom industry, there are some FTSE companies that have world-leading expertise in the energy sector and are already reaping rewards from shale exploration.
Ashtead Group (LSE: AHT) is an international equipment rental company. The company has UK operations (A-Plant brand) and US (Sunbelt) and is already cashing in on the US shale gas boom by supplying machinery to the industry.
Ashtead boast an impressive catalogue of fleet and equipment and recently joined the FTSE 100 group. The Sunbelt brand earns more than 80 per cent of Ashtead’s revenue and has won fracking-related contracts in many US states, it is well placed to repeat this success in the UK. Profits are forecast to be double current levels by 2018. Physical utilisation of its fleet reached record levels during 2012/13.
AMEC (LSE: AMEC) is one of the world’s leading engineering, project management and consultancy companies in the oil and gas market. It has been delivering shale gas extraction projects for many years and is undertaking shale energy exploration research for the UK water industry and the European Commission.
AMEC’s order intake is increasing and Chief Executive Samir Brikho said “our record order book gives us confidence in our continued growth”. The recent acquisition of Foster Wheeler, a global engineering conglomerate, strengthens the company’s position in the growing markets of liquefied natural gas and shale gas, and could double its revenues in growth regions such as North American and Europe.
Another opportunity lies with Weir (LSE: WEIR). It makes pumps and drill parts and is the world’s largest provider of specialist equipment used in the energy sector. The Glasgow-based 141-year-old oil field pump supplier, has become one of the biggest beneficiaries from the surge in shale oil and gas extraction in the US. Weir supplies half the high-pressure pumps used in the US and Canadian shale markets, and demand for equipment used in fracking has buoyed the group.
The interim report (ending April 2014) for its Oil and Gas division reported orders ahead of expectations, up 33% on the prior year period. Equipment orders were slightly ahead of expectations driven by increased frac and cement pump demand.
