Market Report: Shale gas explorer buoyed by well news

Hold on to your hats: two wells are planned near Blackpool in the quest for shale gas. While those close to the site in the Bowland basin in Lancashire might be a little nervous on hearing the news, punters piled into the AIM explorer that is going to start digging.

IGas, which listed back in 2011, said yesterday it will start drilling the two wells this year to “further appraise the significant potential resources it has in the Bowland Shale”.

The update fortuitously coincided with the publication of MPs’ Energy and Climate Change Committee report.

Shale gas is extracted from rock through fracking, or hydraulic fracturing. The process releases hydrocarbons by blasting a mixture of sand, chemicals and water into the rock. It is controversial due to environmental concerns, including worries over earth tremors .

IGas, with a £128m market cap, joins the former BP chief executive Lord Browne’s Cuadrilla as the only fracking companies in the UK so far.

IGas hissed up 6.25p, or 9 per cent, to 74.75p, and the chief executive, Andrew Austin, welcomed the select committee report. He said: “We note the committee is keen to see exploration proceed quickly in order to validate current estimates and establish the true potential of shale gas in the UK. We continue to inform and engage with local communities and are working with the Government to establish how those communities can receive and share in the benefits that shale gas could bring. We continue to work with the Government on the best mechanisms to achieve this.”

The report did raise doubts that any boom in shale gas production will bring down gas prices, and there are still environmental and community impact questions that need answering, but its findings were viewed as broadly positive for the likes of IGas and Cuadrilla.

Canaccord Genuity is taking IGas on a road show to investors next week and said: “Momentum should start to build with the company’s operations over the rest of this year.”

After three days of gains the benchmark index was in the red. Traders said that although there was no specific new bad news, there wasn’t enough really good news for investors to propel it up for a fourth day.

First-quarter GDP numbers in the US were lower than estimated, but it didn’t spark a sell-off. William Nicholls, a dealer at the spread-better Capital Spreads, said: “Equity markets have had a good week on the whole; the FTSE is about 150 points better off now than when it started the week, so investors will feel fairly content over the weekend. However, most intraday traders will probably be finding current markets a bit of a quandary.”

The FTSE 100 edged down 16.17 points to 6,426.42.

The Financial Times owner, Pearson, said underlying sales fell 1 per cent to £1.2bn in the first quarter, against a 3 per cent rise a year ago, in a sign of the tough task facing the new chief executive, John Fallon. It published a 5p decline to 1,144p.

The cement maker CRH failed to stay on solid ground after announcing a deal to buy Lafarge-owned Mykolaiv Cement in Ukraine for €96m (£81m). It wobbled 35p to 1,376p.

Kering, the French owner of Gucci, said on Thursday after the markets closed that sales rose less than expected in its first quarter. But the British luxury brand Burberry barely stumbled on the news, edging down 1p to 1,350p.

Capita revealed that it had teamed up with the Government to sell the know-how of civil servants in a statement after the markets closed on Thursday. Yesterday the City reacted well to the news for the outsourcer, and it topped the blue-chip index, up 23.5p at 886p.

Over on the mid-cap index, the online grocer Ocado lost 3.1p to 165p, having been up more than 11 per cent on Thursday. Rumours had suggested that it was in talks with the Bradford-based supermarket chain Morrisons. But hopes of a takeover bid were dashed when Ocado said the talks related only to a distribution agreement, and not Morrisons acquiring Ocado.

The AIM tiddler New World Oil and Gas said it will plug and abandon the Rio Bravo exploration well on the Blue Creek licence in Belize, and it flowed down 0.55p to 0.88p.

The telecoms tiddler Coms has signed a contract to sell broadband and telephone lines to an outsourcing company with turnover of over £2bn – a £15m contract over the next 24 months. Analysts expected further good news from the company and the shares added 1.3p to 2.08p.

Buy

Clean Air Power

Cantor Fitzgerald has chosen what feels like a breath of fresh air as it encourages us all to pile into Clean Air Power. The broker says the dual fuel engineer has signed a deal in America that comes as no surprise but is nonetheless a step in the right direction . It also sees “significant growth potential”. The shares are 9.5p with a 23p target.

Sell

Rotork

Investec suggests getting rid of Rotork which, it says, “is making most of the right noises but expensive”. The broker is pleased by record orders and a ramp-up in production at the gearbox manufacturer but says the sector de-rating puts it in Sell territory. The shares are 2,868p with a 2,460p target.

Hold

Greene King

You might think it a good idea to quit, but Panmure Gordon beseeches us to hang in there with Greene King. The broker says the brewer and pub landlord will have suffered from the poor weather but, “with a higher South-eastern bias … like-for-likes are likely to continue outperforming industry peers”. The shares are 714.5p with a 607p target.