Government allowance aims to boost high temperature oil and gas

In 50 years the UK has produced approximately 42 billion barrels of oil equivalent (boe) and there are an estimated 21 billion boe yet to be recovered.

In order to help this along, the government recently opened a consultation on a proposal for a new cluster area allowance.

The allowance aims to support investment in ultra high pressure, high temperature (HPHT) oil and gas projects and to encourage exploration in surrounding areas.

It acknowledges the myriad of variables deterring further exploitation of the North Sea’s resources and seeks to redress them with a tax regime that will help support an industry that provides around 450,000 jobs, delivers up to 40 per cent of the nation’s energy needs, and paid £4.7bn in corporation tax in 2013/14. The consultation closes tomorrow.

One company bemoaning a lack of North Sea gas is INEOS, which has been making proclamations of multi-million pound cash giveaways and “democratising” the imminent shale gas revolution.

The global manufacturer of petrochemicals, speciality chemicals and oil products can use shale gas a fuel and feedstock and it imports a lot of this gas from the USA to its Grangemouth plant in Scotland due to the decline in North Sea output.

In August 2013 the prime minister stated that one per cent of revenues from shale production could be returned to the communities that host successful drilling operations, and in June this year companies were invited to bid for exploration licences.

Last month, INEOS announced the purchase of a 51 per cent share of the shale section of a joint Petroleum Exploration and Development Licence (PEDL) in the UK. According to the chemicals giant, the PEDL 133 licence covers 329 square kilometres of the Midland Valley of Scotland, which includes INEOS’ Grangemouth refining and petrochemical complex, plus the area around it.

Following the lead of companies operating in the US, INEOS says it will reward those living in an INEOS Shale Gas community by giving away six per cent of its shale gas revenues to homeowners, landowners and communities close to its wells.

In a nutshell, here are the main points from yesterday’s announcement:

 INEOS estimates it will give away over £2.5bn from its new Shale gas business

 Those living in an INEOS Shale gas community (100km square) would typically share £375m over the life of the project

  Home owners and land owners directly above the wells would share four per cent of the revenue – typically £250m

  Shale gas communities living close to the wells would share two per cent of the revenue, typically £125m

To further strengthen its credibility and provide an added layer of transparency, the company says it has hired what it describes as three of the world’s leading shale gas experts to further strengthen its onshore gas credentials.

Britain’s shale gas industry is clearly in a winning position; it is a game that is theirs to lose and the discussion about profit sharing has merits.

Taking the argument to the naysayers is a good move too but the industry needs to talk to the wider population about safety and environmental responsibility. Get that element wrong and we might be pushing for more yields from HPHT.