The cost of long-term shale gas testing at Doe Green has forced one of the UK’s leading shale fracking prospectors, IGas Energy, to post losses equivalent to half of its annual revenue. The firm was forced to write-off just over £29m in exploration costs during the 2018 calendar year when it concluded the well was not suitable for commercial development.
IGas Energy’s revenue grew by 19.8% to £42.9m thanks to the impact of rising oil prices on the more than 2,200 barrels of oil it produces a day – mostly from conventional onshore drilling from its 100 UK sites. The firm’s hedged realised oil prices were up from an average of $51.3/bbl in 2017 to $57.4/bbl in 2018. As a result the firm’s adjusted profit (EBITDA) remained at a healthy £10.8m, having risen by 17.4% year-on-year.
But a £29.1m write-off from the Doe Green shale fracking exploration site led the firm to post a loss after tax of £21.4m, significantly down from the £15.5m profit after tax the firm made during 2017. Despite the loss IGas remains committed to developing the Tinker Lane and Springs Road fracking sites and remains optimistic about their viability.
The accounts serve to highlight the financial risk associated with the development of the UK’s shale fracking industry, particularly given the main competitors are smaller firms which lack the reserves to swallow such losses year in, year out. Only last week the Public Accounts Committee raised concerns over how these smaller firms would pay for decommissioning costs (EIA+P 05-Apr-19)