Derek Pain: Whether it's methane or shale, Alkane knows how to put its foot on the gas
Saturday 15 February 2014
The dash for shale gas should be adding a special glow to the power generator Alkane Energy, recruited to the "no pain, no gain" portfolio in August.
The group was surprisingly uncommunicative about its involvement in this still controversial area when it produced upbeat trading comments last month.
Yet it is sitting on a number of intriguing exploration and development prospects for shale gas – some, it appears, dating back to the 1990s. Last year's arrival on the shale scene of Centrica, parent company of British Gas, and the more recent appearance of French oil giant Total have, together with resounding political encouragement, served to generate a high degree of stock market interest.
In the United States, shale is already an outstanding success and is responsible for lowering energy prices dramatically. So far, Europe has displayed only modest interest. But in this country, shale is at last creating high excitement and a number of smallish companies are already on the bandwagon.
Production has yet to get going and there remains a high element of risk. In addition, certain environmental groups have protested rather hysterically against any development, as illustrated by the furious demonstrations in Sussex last year.
Additionally, of course, there remain doubts whether anything approaching the US performance can be repeated in this country, which does not enjoy the wide open and undeveloped spaces that abound across the Atlantic.
Alkane, in my view, is a better bet than other small players. At the moment its shale side merely consists of promising licences, not so far from Total's newly acquired interests. As far as I can gather, Alkane is still considering what to do with its shale potential. It could link with another party – presumably a much bigger operation that could absorb most of the costs involved – or go it alone. There is also the possibility of a rewarding sell-off.
My guess is that it will form an alliance with a substantial operation.
Whatever is decided, the company, unlike many other shale players, already embraces a lucrative business. And its highly successful electricity operation could become even more important because of the perceived shortage in a few years that could cause blackouts.
It is a generator with an intriguing role in the power game. Its major activity is capturing methane from abandoned coal mines and then converting it into electricity. The result is sold to the National Grid.
There are plenty of disused coal mines dotted around. One of the company's more recent additions is the old Maltby colliery in South Yorkshire, acquired last year from a former constituent of the "no pain, no gain" portfolio, Hargreaves Services, the coal to transport group. Its gas production in the six or so months under Alkane's ownership is ahead of expectations. Further, in a £1.5m deal, the group has just added to its power- response facilities. It has acquired a West Yorkshire establishment from SSE (Scottish & Southern Energy) that provides peak response and participation in National Grid's short-term power reserves programme.
Neil O'Brien, Alkane's chief executive, comments that the "industry faces increased risk of an energy gap over the coming years".
In its last reported year ,Alkane produced pre-tax profits of £2.3m. There should be a comfortable increase when it discloses its 2013 figures next month. Already it has said that revenue increased by 15 per cent.
The portfolio alighted on the shares at 40.75p; they have since topped 50p but probably slipped back a little on the failure to provide any shale update in the trading statement. As I write, the price is around 45p, but the indications are that some have set a target that is near the 90p mark.
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