Emerging global clean energy company Eden Energy (ASX: EDE) has added a new dimension to its valuation with publication of a prospective shale gas resource in Wales today that is likely to be a game changer.
Eden's prospective Welsh shale gas resources were outlined by independent experts RPS Group Plc and results indicate just how significant it could be for the company.
The Namurian Measures on the seven Petroleum Exploration and Development Licences (PEDLs) in South Wales cover a prospective area of 806 square kilometres.
The total unrisked in-ground P90 resource has been estimated at 34 trillion cubic feet of gas. (tcf), of which 12.8tcf is classified as recoverable.
The vast size of the resource is put into perspective when one considers in 2009, the UK used a total of about 3.6 tcf of gas, and the Gorgon gas field is only 40tcf and plans to produce 15 million tonnes of LNG for 40-60 years.
The Gorgon offshore gas field off Western Australia that is being developed for a reported cost of more than $40billion by a consortium including Chevron, Shell and Mobil is reported to contain 40tcf of gas and is planned to produce 15 million tonnes of LNG per year for between 40-60 years.
Eden holds, in joint venture (or in the case of three licences is acquiring), up to a 50% interest in the coalbed methane and natural gas targets, together with the 50% interest in the shale gas measures on 17 Petroleum Exploration and Development licences in South Wales, Bristol/Somerset and Kent.
The licenses cover an area of almost 1,800 square kilometres and importantly, a recent publically released report by the UK Government following a parliamentary inquiry, supported the on-going shale gas drilling within the UK.
In addition to the shale gas resource review, RISC Pty Ltd (RISC) was commissioned to undertake a review of the prospectivity for coal bed methane.
Significantly, the coalbed methane resource of between 2.6 – 6.3 tcf (and in about 85% of which Eden holds a 50% interest, and a 5% interest in the remaining 15%) is also a very large resource in its own right.
Providing a benchmark and comparison for this resource, BHP (ASX: BHP) recently paid $4 billion dollars in the U.S. for 2.4 tcf proved reserves, and 10 tcf total risked resources of shale gas.
This represented a purchase price of US$1.77 per MCF (thousand cubic feet) for proved reserves or US$0.43 per MCF for total risked resources.
Comparable prices have been paid in Australia for Queensland coalbed methane assets over the past two years and confirm this sort of value for these sized assets when they are proven up.
Gregory Solomon, chairman of Eden, is known to be extremely bullish on upside potential. He said today, “this could well become a truly enormous project. All we have to do is show that we can get the gas out of the ground, which we are confident that we will be able to do.”
The UK is now an importer of natural gas. The total gas consumed in UK in 2009 was 3.6tcf. This makes the aggregate of nearly 39 tcf of unrisked P90 Resource of GIIP of both shale gas and coal bed methane a very significant amount of gas in the context of the UK gas market.
The price of gas in UK is high compared to Australia and US. In 2009 it is reported that the UK price of industrial gas was 58% higher than in USA.
The gas is located within very close proximity (0-30km) to industrial markets and to both the national power grid and national gas pipelines. The potential customers include a steel mill, a paper mill and a Rockwool insulation manufacturer.
The national powergrid and gas pipeline system, which also connect to Europe, both run right across the Welsh licences, enabling cheap and easy access to a range of lucrative markets.
It has been estimated that the prices that could be received for the UK gas could be comparable to the prices received in Australia for LNG, but without the necessity for an enormous capital investment in an LNG plant.
Solomon said, “additionally it should be a low cost resource to exploit as industrial customers, such as a steel mill and a paper mill, are located on the licenced area in Wales and the national power grid and gas pipelines both cross it."
The Namurian shale areas in South Wales are only a part of the areas in the Eden UK licences that are prospective for shale gas.
These same Namurian shales are also found in the 450 square kilometres of licences in which Eden holds a 50% interest, immediately across the Bristol Channel from Wales, in Bristol/ Somerset.
In addition there are a number of other shale and limestone sequences throughout much of Eden’s total 1800 square kilometre UK licence area that are also prospective for unconventional gas, leaving open the potential for significant further gas resources being identified.
Analysis
For a company with a market capitalisation of just over $23 million, this prospective gas resource is likely to dwarf the company's other businesses and be a significant value add for Eden and render current valuations miserly in 6-12 months.