Re Agreement
Egdon Resources PLC
21 April 2005
21st April 2005
For immediate release
EGDON RESOURCES PLC
EGDON ENTERS UK GAS STORAGE MARKET
Egdon Resources Plc ('Egdon' or 'the Company') is pleased to announce that its
wholly owned subsidiary, Portland Gas Limited ('PGL'), has signed an agreement
with Portland Port Limited to take a lease of a potential site to store natural
gas on the Isle of Portland, Dorset.
Following a review of gas storage opportunities in the UK, Egdon has decided to
pursue this developing UK market as part of its wider business plan. The Company
has identified a salt (halite) sequence within the Triassic of the Wessex Basin
in Dorset which it considers suitable for the creation of cavities to store
natural gas. Egdon has investigated potential locations to build a storage
facility in Dorset and decided upon a 5 hectare 'brownfield' site formerly
occupied by Royal Navy buildings at the port on the Isle of Portland.
Salt is at a depth below the site of approximately 2000 metres with an
anticipated thickness of in excess of 400 metres, determined from seismic data
and correlation with several wells that have penetrated the sequence within 25
kilometres of the proposed site. The creation of the cavities is subject to
planning permission, Health and Safety legislation and consent from the Crown
Estate. A pipeline will be built, subject to necessary consents and landowner
agreements, from the proposed facility to the National Transmission System (NTS)
north-east of Dorchester.
An Agreement for Lease has been signed for an initial 18 month period, during
which time, in addition to defining the properties of the salt by drilling, the
facilities will be designed and permissions and consents obtained for the
project. At the end of the initial period, PGL have an option to convert to a 15
year lease, with further options to extend the lease in increments of 15 years
up to a maximum of 90 years. PGL will have an exclusive right to store natural
gas deep below the land owned by Portland Port Limited.
PGL's business model is to buy and store gas during periods of low demand when
prices are lower and then sell it on when demand and prices are higher. Such
price differentials occur both on a seasonal cycle and also shorter cycles
where, for example, a particularly mild spell of weather is followed by a sudden
cold snap. The working capacity of the facility will depend upon several factors
determined from further detailed geological, engineering and economic modelling
after the initial confirmatory well has been drilled. This is expected to take
place in Q4 2005 whilst acquisition of a seismic line, to confirm the subsurface
location of the well, is planned for May 2005.
Commenting on the agreement, Egdon's Joint Managing Director, Andrew Hindle,
said 'The move into gas storage is a very exciting development for Egdon. UK
production of gas is expected to decline significantly over the next few years
and this will result in a commensurate growth of gas imports to meet demand.
Over the past 40 years, periods of high demand for gas have been met by using
peak production capacity available from the North Sea. With supplies
increasingly coming from further afield, gas storage facilities look set to
become a vital resource in the gas supply marketplace. Egdon has used its
extensive knowledge of the geology of the UK onshore to identify the potential
site at Portland to participate in this emerging growth business within the UK
oil and gas industry. It is currently anticipated that the initial working
volume will be between 10 and 20 billion cubic feet and the first cavity on the
site should become operational in 2008'.
For further information please contact:
Egdon Resources Plc 01256 702292
Mark Abbott, Joint Managing Director
Andrew Hindle, Joint Managing Director
Buchanan Communications 020 7466 5000
Eric Burns
Ben Willey
Notes to the Editors:
The UK is the world's third largest consumer of gas following the US and Russia.
The economy is very dependent upon gas; 20 million households use gas directly
for cooking and heating, and approximately 40% of electricity is generated from
gas fired power stations (expected to rise to 60% by 2010) (Reference 1). By
2006, the UK will become a net importer of gas on an annual basis and, by 2010,
imported gas will meet half of UK demand (Reference 1). This has implications
for security of supply and the swing capability to meet winter demand. Storage
capacity is currently about 4% of annual consumption, compared with 25% in
France and 21% in Germany (Reference 2). Gas storage facilities are currently
being built and planning sought for further sites by other companies, both
within salt in northern England and throughout the onshore UK in depleted oil
and gas fields. Egdon estimate that these new facilities, if they are all
constructed, will increase storage capacity by approximately 60%. However,
capacity will remain significantly less than those of other comparable European
economies.
The NTS is a high pressure gas pipeline network in the UK owned and run by
National Grid Transco. The pipeline connecting the proposed facility on the Isle
of Portland to the NTS would be 30 to 40 kilometres in length, depending on the
final routing.
There is currently no underground gas storage built or planned for south-west
England, so the proposed facility would be the first such project in the region.
The nearest facility to the proposed site is currently under construction at
Humbly Grove, east of Winchester in Hampshire, for Star Energy Group plc.
Once constructed, income would be generated from one or more sources including:
1. Buying gas, storing it and selling it for a higher price on the spot
gas market. Given the high delivery rate of salt cavern storage projects
compared with storage in depleted oil and gas fields (up to ten times
faster), short-term as well as seasonal price fluctuations can be
exploited.
2. Forward buying and selling gas on the spot gas market. Such hedging
activity allows the gas storage owner to lock into forward curves of
seasonal price differentials many years in advance.
3. Leasing gas volumes to utility companies or gas traders.
The cavity creation process by solution scouring would typically take one to two
years for each borehole. This would comprise the standard method of pumping
seawater down an inner tubing string and receiving brine on an outer concentric
string until the required cavity size has been achieved. Cavity creation ceases
when the desired cavity size has been achieved. The required duration of
solution mining is determined both by mass balance calculations of the produced
salt and periodic 'downhole' sonar surveys. The resultant cavities are broadly
circular, but usually have an irregular pear shape when viewed in a vertical
section. A salt cavern will typically have a diameter of 40 to 70 metres, height
of 100 to 500 metres and working volume of 1 to 3 billion cubic feet. The number
of cavities required will be determined by a number of factors including the
thickness and depth of salt and the total working storage volume required. Gas
deliverability from salt caverns is good, typically it takes only 5 to 35 days
to unload a working volume.
Reference:
1. Presentation by Department of Trade and Industry to a conference 'The
future development and requirements for underground gas storage in the UK
and Europe', Aberdeen, October 2004.
2. Presentation by Star Energy Group plc to a conference 'The future
development and requirements for underground gas storage in the UK and
Europe', Aberdeen, October 2004.
Company Background
Egdon is an established, independent UK-based oil and gas exploration company
primarily focused on the hydrocarbon-producing basins of the onshore UK. Egdon
also has exploration interests in the offshore UK and France.
Egdon was formed in 1997 by Dr Andrew Hindle and Mark Abbott. In December 2004,
Egdon's shares commenced trading on AIM, having been previously traded on Ofex
since July 2000. The Company has acquired a diverse portfolio of nineteen
exploration licences containing a significant number of identified oil and gas
prospects. The licences cover a broad risk spread, ranging from discoveries
under appraisal through to higher risk but higher potential reward prospects.
This information is provided by RNS
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