CLUFF Natural Resources has called time on controversial plans to produce gas by burning coal under the Firth of Forth but said its Southern North Sea assets have potential amid an improvement in sentiment in the area.
The company, which is run by oil and gas entrepreneur Algy Cluff, told investors it has handed back the licences under which it was investigating the potential of underground coal gasification after running into official opposition.
“In the absence of a supportive policy on UCG emerging from Westminster and the indefinite extension of the UCG Moratorium in Scotland, the Company has … notified The Coal Authority, as the responsible authority for issuing UCG licences, that it is relinquishing its nine UCG licences,” CNR said yesterday.
The Aim-listed company made the statement four months after the UK Government killed off hopes it might support UCG, which campaigners have said poses risks to the environment.
The Government said it was not minded to support the technology following a review into the greenhouse gas implications.
CNR had previously written off the value of its UCG licences but had left them on a care and maintenance basis in the hope a supportive policy on gasification would emerge from Westminster.
While CNR had invested considerable effort in developing its gasification proposals, the company said it had successfully repositioned its portfolio to focus exclusively on the Southern North Sea, where Mr Cluff reckons there is lots to play for.
He noted a recent study underlined the commercial potential of two of the prospects on CNR’s acreage. This had confirmed the company in its long-held conviction that exploring for gas in the Southern North Sea can deliver significant value for shareholders and the UK, even amid a period of low oil and gas prices.
Mr Cluff said of the North Sea: “It is widely agreed that there remain many licences which contain high quality exploration targets ... Secondly, the North Sea is well run. Thirdly, it is secure.”
The area also contains many existing discoveries which remain undeveloped and which could provide the basis for a “North Sea Phase Two”.
There are signs that confidence is returning to the industry, in a way that may make it easier for junior oil and gas firms to make progress in the North Sea.
“While the market for oil and gas companies remains challenging I believe there has been a significant improvement in sentiment, both within and towards the industry,” said Mr Cluff.
He noted BP had said it planned to double production from UK waters. Mergers and acquisitions activity has increased in the area.
CNR’s efforts to find partners to help share the cost of drilling on the licences have met with a promising response.
Mr Cluff said there had been a significant level of interest in the dataroom opened in January to provide information about its exploration assets to potential farm-in partners.
The regulator has extended the favourable ‘Promote’ terms on the licences by 12 months to 30 November in recognition of the challenging farm-out market in recent years and the length of time required to complete deals in the current oil price environment.
The company wrote £318,000 off the valuation of three other Southern North Sea licences which were relinquished during 2016.
CNR cut losses to £1.73m in 2016, from £1.87 in 2015. It raised £2.5m through share placings last year.
Directors reckon the company has enough funds to cover its budgeted exploration and development programme until the fourth quarter of 2017.
Further funding will likely be required to allow the company to fully implement its strategy beyond this period.
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