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UK Government Facilitates Frackers

Last week the UK Government proposed legislation changes, in the form of an amendment to the UK trespass laws, which will remove yet another hurdle for hydraulic fracking companies. Currently, companies are required to seek permission from landowners if they drill under their land.

The shale gas industry welcomed this proposal as a “very timely” change in the law, which is considered a major obstacle to exploration. Most hydraulic fracking occurs at depths of 2-3km, and can extend to as much as 3km horizontally from a central well shaft.

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Shares in companies with licenses for UK shale exploration all saw rises as the Government announcement was made. One AIM-listed company with exploration licenses in the UK is IGAS Energy (LSE: IGAS), which has a market capitalisation of £287m and has recently purchased the privately held Australian Dart Energy in a deal worth nearly £120m. This deal created the UK’s biggest shale gas explorer, which now holds licenses covering over 1 million acres of potential fracking land.

oil rigOther players with onshore shale assets include Alkane Energy (LSE: ALK), which has a market capitalisation of £53m and recently announced that it would transfer it shale assets (more than 800km2) to Egdon Resources (LON:EDR). This deal gives Alkane 18% of the enlarged share capital in Egdon, which will progress the assets by raising funds to take the acreage to the appraisal stages.

Ministers are concerned that other countries — especially in Eastern Europe — have been making fracking appear more attractive to investors. They hope this change to legislation will be an encouraging nudge to potential investors, and comes shortly before the long awaited 2014 licensing round.

U-Turn For Germany

The UK Government is not the only one courting this new energy sector. Germany, which has previously been against any development of the fracking industry, is also now reportedly preparing a framework that will allow energy companies to extract oil by fracking. The German government is responding to pressure from industry and consumers to develop new sources of fuel and reduce its reliance on imported gas. It is estimated that Germany has enough shale gas to supply domestic use for 30 years. Draft laws will be put to Parliament in the coming weeks, with a vote by the end of the year.

The price rises seen in the last few days for the shale energy explorers show the increasing commitment from the UK government to develop this new energy source. With both the UK and Germany making changes to embrace this changing energy industry, it remains to be seen how long before the super-majors start circling. Speculators are already considering which of the AIM minnows could be a target for takeover.

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Lisa Walls-Hester does not hold shares in the above companies.