Total Becomes Largest Oil Producer to Invest in U.K. Shale

Jan 13, 2014 12:03 pm ET

(Updates with closing share prices in fifth paragraph.)

Jan. 13 (Bloomberg) -- Total SA became the largest oil company to enter the U.K.’s shale-gas industry through a $47 million investment in licenses in eastern England.

Europe’s third-biggest oil producer will buy a 40 percent stake in two exploration areas held by Dart Energy Ltd., Paris- based Total said today in a statement. IGas Energy Plc, which holds 14.5 percent of the permits, will become the operator.

Total is looking to explore for shale outside France, where the hydraulic fracturing drilling method is banned. The company is already involved in shale projects in the U.S., where the boom in output saw the country overtake Russia as the world’s biggest gas producer in 2009. Now Britain is offering incentives to open up its own shale industry as North Sea reserves decline.

“The entry of a major such as Total into the U.K. shale arena will give a significant boost to the nascent shale gas supply chain,” oil-services investor Epi-V said in a note.

Total fell 1.2 percent to 43.055 euros at the close of Paris trading. Dart Energy jumped 13 percent to 13 Australian cents in Sydney. IGas surged 18 percent, the biggest one-day gain since May 2009, to close at 126.75 pence in London.

The shale deal is the second in the U.K. by a French company. In October, GDF Suez SA, France’s biggest gas supplier, bought a 25 percent stake in 13 licenses in England’s Bowland Basin from Brisbane, Australia-based Dart.

Shale Incentives

British Prime Minister David Cameron has pledged millions of pounds to local authorities that approve shale developments, part of a drive to create jobs and attract investment. He faces opposition from environmental groups and local residents who say hydraulic fracturing, or fracking, may pollute ground water.

Once the Total deal is complete, Dart will own 17.5 percent of the licenses, which are part of the Gainsborough Trough and cover about 240 square kilometers (93 square miles). Egdon Resources Plc will hold 14.5 percent and eCorp International LLC will have 13.5 percent, the companies said in separate filings.

Cameron has proposed that local governments keep 100 percent of the business rates they collect from shale-gas sites, double their current share, according to figures released by his office. That may equate to 1.7 million pounds ($2.8 million) in central-government funding for each site every year.

The U.K. is also offering lower taxes to spur drilling. The Bowland area, extending from east to northwest England, may hold as much as 1,300 trillion cubic feet of gas, the British Geological Survey says. That’s enough to meet demand for almost 50 years, based on an extraction rate similar to U.S. fields.

Aside from Britain and the U.S., Total is involved in shale-gas projects in Argentina, China, Australia, Poland and Denmark. In its home market, the company is prohibited from exploring shale areas after France outlawed fracking in 2011.

--Editors: Amanda Jordan, Tony Barrett