The Motley Fool

2 Winners From Fracking ‘Green Light’: Egdon Resources Plc And IGAS Energy PLC

The prospect of an oil boom within the UK is back on the table again. Today, MPs are working on a bill that will give the go ahead for an expansion of fracking activity across the country.

Unlocking reservesoil

This new initiative will allow companies to bid for onshore oil and gas licences, with around 50% of the country up for sale. It is expected that there will be strong demand for these licences, as the British Geological Survey has estimated that shale deposits around the country are large enough to supply the country with gas for up to 40 years.  

Specifically, it is estimated that there are 820trn to 2000trn cubic feet of gas embedded under the UK. However, the technology does not exist to extract all of these reserves. For example, over in the US, where fracking has transformed the country’s oil economy, only around 5% of the hydrocarbons under the ground have been accessed.

Additionally, the UK lacks space as thousands of exploration wells have been drilled across the US to access reserves. It’s unlikely that the general public here in the UK would considered the drilling of thousands of exploration wells acceptable. 

Huge windfall

A report commissioned by IGAS Energy (LSE: IGAS) estimates that if just 5 trillion cubic feet of shale gas was extracted, the resulting industry could support up to 3,500 jobs and creating a £10bn windfall for the UK economy. 

IGAS believes that this can be done by getting the first three wells into production by 2017 and expanding year on year until 2031 when 300 wells — 10 wells at 30 sites — could be operational.

Making progress 

We should have more information on the visibility of the shale boom near the end of August. Egdon Resources  (LSE: EDR) and its partners Europa Oil & Gas and Union Jack Oil started drilling the Wressle-1 conventional oil exploration well at the PEDL 180 licence in northern Lincolnshire around a week ago.

Results from the well are expected within 38 days and they will be instrumental in assessing how viable the UK’s shale reserves are. 

Egdon and its partners are aiming to drill to a total depth of roughly 2,300 metres to intersect a number of prospective reservoirs in the Wressle structure. Gross prospective resources are estimated to be 2.1 million barrels of oil.

The projects location has been chosen for its strategic significance as it is surrounded by both producing oil wells and other discoveries.  

Will take time 

Despite these prospects, however, it will take time for profits to start flowing from oil and gas production. Indeed, current City forecasts don’t expect IGAS to turn a per share profit until 2016.

Analysts expect IGAS to report earnings per share of around 1.5p for 2016 — putting the company on a lofty 2016 P/E of 76. For the year ending 2015 IGAS is slated to report a pre-tax profit of £5.2m. 

What’s more, Egdon is expected to report a loss for the next two years and the company invests heavily in its operations. 

Risky business

A shale oil boom could transform the UK, although one thing to remember is, that the oil business can make you rich but it can also make you poor. That's why the best investors build a portfolio with a combination of both risky oil companies and reliable dividend paying stocks, reducing risk and allowing you to sleep soundly at night.

To help you build your dividend portfolio, the Motley Fool's top analysts have put together this free report revealing the secrets on how you can "Create Dividends For Life".

Just click here to download the report for free today!

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool has no position in any of the shares mentioned.