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Third Energy shares gamble

Third Energy seeks to expand

Third Energy, the fracking company that was recently dumped by Barclays, is reported to be exploring a public share offering to raise money to further its operations.  According to Laurence Kilgannon at Insider Media:

“The business could raise as much as £250m to help extract the gas it has identified at its sites, including near Kirby Misperton in Ryedale, the report added.”

The decision to sell shares in the venture appears to have been prompted by the inclusion of pro-fracking policies in the Tory Party election manifesto, and could be the opening shot in an attempt to inflate a UK fracking debt bubble similar to the one in the USA.

This said, the amount of capital Third Energy is seeking to raise is paltry by industry standards.  The cost of drilling and fracking a gas well in the USA can range between $5m (£3.85m) and $8m (£6.16m).  However, European fracking could be more than double this.  As Jared Anderson at CNBC points out:

“One also cannot directly translate shale gas development costs in U.S. plays to other prospective areas around the world. For example, a 10,500 vertical foot well with a 4,000 foot lateral in the Haynesville Shale costs about $8 million… but the same well in Poland would cost $14 million to $16 million.

“This is because shale gas development in Eastern Europe is an immature industry and a company would need to import equipment, fracking crews, etc.”

In this light, the £250m that Third Energy is seeking to raise is at best going to allow 25 wells to be drilled and fracked (assuming it isn’t just going to frack its existing conventional gas wells).  This is barely sufficient to test whether UK shale gas is worth pursuing.  In the past, companies have said that 20-40 test wells would be enough to give a clear picture on recovery potential.

Nobody doubts that there are huge deposits of gas locked up in UK and European shale formations.  The real question facing Third Energy – assuming it can raise the £250 million – is whether it can recover and sell enough gas at a high enough price to provide a return on that investment.

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