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IGas: Canaccord repeats ‘buy’ after Manchester shale drilling success

Published: 23:33 01 Apr 2014 AEDT

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City broker Canaccord Genuity repeated a ‘buy’ recommendation on IGas Energy (LON:IGAS), following the successful drilling of the Irlam-1 well on the outskirts of Manchester.

At 170p the broker’s target price represent some 37% upside to the current price of 123.75p.

The AIM-listed company said the Irlam well encountered coal measures at anticipated depths, while also successfully intersecting the secondary target of the Dinantian limestone to “calibrate the seismic data”.

In doing so, the firm said it also found a “package” comprising the Sabden and Bowland Shale formations.

A full suite of wire line logs was run, which will be used with the core data to evaluate the prospect of both the shale interval as well as the coal measures.

The well will now be suspended, the rig removed and a full laboratory analysis  of the cores instigated – a process expected to last up to six months.

The results will be used to determine the next steps in the appraisal process.

Canaccord analyst Charlie Sharp, in a note, said: “At present, the limited available information (about thickness, organic content, shale maturity, geomechanical properties, etc.) makes it difficult for us to judge how the Barton well will influence the future Bowland Shale drilling programme.

“Perhaps, for now, just as important, is that IGas has shown that it can drill these wells in a safe and environmentally responsible way, and we think that will stand the company in good stead as it moves ahead with further drilling, fracking, and testing, plans.”

Sharp pointed to the British Geological Societies pending shale review, due in the second quarter, as one of the possible catalysts for the share price. 

After that, the next catalysts identified by Canaccord are the government’s increasingly high profile onshore licensing round in the second half, and the release of the Irlam well core results in the Autumn.

The broker reckons IGas will carry out multiple drill programmes in early 2015.

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