EDR.L Regulatory News (EDR)

21 Apr 2005 07:00

Egdon Resources PLC21 April 2005 21st April 2005For immediate release EGDON RESOURCES PLC EGDON ENTERS UK GAS STORAGE MARKET Egdon Resources Plc ("Egdon" or "the Company") is pleased to announce that itswholly owned subsidiary, Portland Gas Limited ("PGL"), has signed an agreementwith Portland Port Limited to take a lease of a potential site to store naturalgas on the Isle of Portland, Dorset. Following a review of gas storage opportunities in the UK, Egdon has decided topursue this developing UK market as part of its wider business plan. The Companyhas identified a salt (halite) sequence within the Triassic of the Wessex Basinin Dorset which it considers suitable for the creation of cavities to storenatural gas. Egdon has investigated potential locations to build a storagefacility in Dorset and decided upon a 5 hectare 'brownfield' site formerlyoccupied 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 ananticipated thickness of in excess of 400 metres, determined from seismic dataand correlation with several wells that have penetrated the sequence within 25kilometres of the proposed site. The creation of the cavities is subject toplanning permission, Health and Safety legislation and consent from the CrownEstate. A pipeline will be built, subject to necessary consents and landowneragreements, 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, duringwhich time, in addition to defining the properties of the salt by drilling, thefacilities will be designed and permissions and consents obtained for theproject. At the end of the initial period, PGL have an option to convert to a 15year lease, with further options to extend the lease in increments of 15 yearsup to a maximum of 90 years. PGL will have an exclusive right to store naturalgas deep below the land owned by Portland Port Limited. PGL's business model is to buy and store gas during periods of low demand whenprices are lower and then sell it on when demand and prices are higher. Suchprice differentials occur both on a seasonal cycle and also shorter cycleswhere, for example, a particularly mild spell of weather is followed by a suddencold snap. The working capacity of the facility will depend upon several factorsdetermined from further detailed geological, engineering and economic modellingafter the initial confirmatory well has been drilled. This is expected to takeplace in Q4 2005 whilst acquisition of a seismic line, to confirm the subsurfacelocation 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. UKproduction of gas is expected to decline significantly over the next few yearsand 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 usingpeak production capacity available from the North Sea. With suppliesincreasingly coming from further afield, gas storage facilities look set tobecome a vital resource in the gas supply marketplace. Egdon has used itsextensive knowledge of the geology of the UK onshore to identify the potentialsite at Portland to participate in this emerging growth business within the UKoil and gas industry. It is currently anticipated that the initial workingvolume will be between 10 and 20 billion cubic feet and the first cavity on thesite should become operational in 2008". For further information please contact: Egdon Resources Plc 01256 702292Mark Abbott, Joint Managing DirectorAndrew Hindle, Joint Managing Director Buchanan Communications 020 7466 5000Eric BurnsBen 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 directlyfor cooking and heating, and approximately 40% of electricity is generated fromgas fired power stations (expected to rise to 60% by 2010) (Reference 1). By2006, 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 implicationsfor security of supply and the swing capability to meet winter demand. Storagecapacity is currently about 4% of annual consumption, compared with 25% inFrance and 21% in Germany (Reference 2). Gas storage facilities are currentlybeing built and planning sought for further sites by other companies, bothwithin salt in northern England and throughout the onshore UK in depleted oiland gas fields. Egdon estimate that these new facilities, if they are allconstructed, will increase storage capacity by approximately 60%. However,capacity will remain significantly less than those of other comparable Europeaneconomies. The NTS is a high pressure gas pipeline network in the UK owned and run byNational Grid Transco. The pipeline connecting the proposed facility on the Isleof Portland to the NTS would be 30 to 40 kilometres in length, depending on thefinal routing. There is currently no underground gas storage built or planned for south-westEngland, so the proposed facility would be the first such project in the region.The nearest facility to the proposed site is currently under construction atHumbly 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 twoyears for each borehole. This would comprise the standard method of pumpingseawater down an inner tubing string and receiving brine on an outer concentricstring until the required cavity size has been achieved. Cavity creation ceaseswhen the desired cavity size has been achieved. The required duration ofsolution mining is determined both by mass balance calculations of the producedsalt and periodic 'downhole' sonar surveys. The resultant cavities are broadlycircular, but usually have an irregular pear shape when viewed in a verticalsection. A salt cavern will typically have a diameter of 40 to 70 metres, heightof 100 to 500 metres and working volume of 1 to 3 billion cubic feet. The numberof cavities required will be determined by a number of factors including thethickness and depth of salt and the total working storage volume required. Gasdeliverability from salt caverns is good, typically it takes only 5 to 35 daysto 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 companyprimarily focused on the hydrocarbon-producing basins of the onshore UK. Egdonalso 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 Ofexsince July 2000. The Company has acquired a diverse portfolio of nineteenexploration licences containing a significant number of identified oil and gasprospects. The licences cover a broad risk spread, ranging from discoveriesunder appraisal through to higher risk but higher potential reward prospects. This information is provided by RNS The company news service from the London Stock Exchange