Junior Oil Firms: Not All Doom and Gloom

Some Gas Producers Should Fare Well

In the UK, junior companies involved in gas should also fare better than their oil-focused counterparts.

"UK gas prices are still close to 50p a therm so actually it has been somewhat impacted by the price of oil but it's much more affected by the specifics of the domestic supply and demand situation. So, if the cost of equipment and cost of services comes down with all of this then that's kind of good news," Henderson said.

Perhaps unsurprisingly this is also the view of Mark Routh, who is CEO at offshore UK-focused junior Independent Oil & Gas – which is developing a handful of gas assets in the UK North Sea. Routh explained that although the oil price may have more than halved in recent months, gas prices in the UK have proved more resilient.

"We've seen a softening of gas prices from 60p a firm to 46p. So the … prices for gas are solid. And there are very firm reasons for that in the UK," Routh said.

"The first reason is that there is insufficient storage capacity for gas in the UK for more than around 10 days of peak demand. And about 80 percent of that comes from the Rough Gas Storage Field. There's not much gas storage in the UK at all, so we rely on imports through the interconnectors from Europe … So, when it gets cold we have to get gas from somewhere and it has to be local because you can't rely on LNG because it takes time to ship LNG and re-gassify it."

The resilience of gas prices in the UK could also play a part in determining whether the UK's burgeoning onshore shale gas industry begins to gather pace or not, according to Westhouse's Henderson.

"Shale gas in the UK could end up okay out of this. On the assumption that the UK gas price remains where it is then I think there's certainly the demand for that gas. The infrastructure exists and if your cost of rigs and your cost of services and the cost of fracking equipment improves and everything goes down then, ironically, the economics might even be better," he explained.

"Of course the other issue is that we still have a way to go before we have a proper understanding of whether shale gas will be economically viable in the UK. And 'economically viable' in the context of whether the wells will flow adequately and whether the fracturing of shale is going to present a problem.


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