Executive Q&A: Interview with Andrew Austin, CEO IGas Energy Plc

Ross Stewart Campbell (RSC) from The Oil Council: Andrew, many thanks for joining us to share your thoughts on today’s markets. To cover off introductions can you quickly introduce yourself and IGas Energy?

Andrew Austin from IGas Energy (AA): Hi Ross, IGas Energy (LON:IGAS) is an unconventional gas business listed on AIM. All our assets are in the UK, principally across the North West of England. We have drilled seven wells to date and are currently producing from our pilot production site at Doe Green, situated between Liverpool and Manchester.

RSC: Looking first at the global picture of unconventional gas Andrew we’re seeing a growing number of new ventures shoot up across the globe following the ‘shale gale’ in the US and significant finds in Australia. Once considered a new industry fad unconventionals are now a new industry market in their own right. What are your thoughts on this increasing globalisation (and appreciation) of unconventional gas and Coal Bed Methane (CBM)? How large a market can unconventional gas become? And how large an impact are recent technological advancements having on the growth and development of the market?

AA: We’ve already seen the effect that Shale has had on the market for gas in North America reflected in the reduced number of LNG imports to the US. In Australia CBM has changed the landscape for gas to Asia by the sheer size and speed of its growth. In Europe currently there is something of a land grab occurring for unconventional gas and I am sure that it will form a material part of the supply mix here over the next decade.

RSC: We’ve witnessed massive investment in the development of unconventional and CBM supply chains in the US. How do the supply chains for CBM in other counties compare and how far advanced is the UK’s supply chain? What timeline are we looking at for the UK to build a sufficiently effective CBM supply chain?

AA: Clearly the supply chain is more developed in other countries. However there are currently a number of groups that are looking at establishing themselves as suppliers to the industry. We‘re now seeing rigs being ordered for use in the UK with service companies looking to now aggregate the drilling programs of the different players.
Furthermore we’re also seeing interest from the water drilling industry and construction firms looking to move into the market. In short it is early days but it’s growing.

RSC: One of the big advantages to CBM is the ability for some countries to decrease their dependency on foreign gas imports. How might CBM influence the future dynamics of energy security and geopolitics? And how important an ingredient will CBM be in future UK energy mix?

AA: I think that energy security is a growing theme Ross. If you add to this the reduced carbon impact of utilising local gas rather than imported gas, domestic unconventional gas is a very interesting place to be.
I also believe that gas powered electricity generation is going to have an increased roll in the UK as the coal fired stations near the end of their life and new nuclear struggles with permitting issues. So a material amount of gas that is close to customers is going to be a very important ingredient in any future energy mix.

RSC: Moving to focus more on IGas now Andrew many small-cap companies have endured a rocky road in the past 12-18 months. How resilient has IGas been in this period, both in successfully navigating the choppy economic and financial seas, and in positioning yourself for new growth at the end of the testing storm?

AA: Over the last three years we have increased our resources markedly. We now have a 2C contingent resource of 807bcf. We have tried to always be ready for the next challenges in our business and have ensured we have enough funding available to take us from pilot production through to our first full production site in 2011. Running a small-cap company always has challenges but I am convinced that we have positioned ourselves extremely well for delivery over the next couple of years.

RSC: Your focus has always been onshore and offshore UK, do you see that changing at all Andrew? Are you looking to expand internationally, perhaps into Europe to look at new CBM plays there? If not are you looking to increase your UK portfolio in the near future either through new exploration, acquisitions or farm-ins?

AA: We see ourselves as UK focused and so are not looking to expand internationally.
As to deals, we always look at opportunities as they present themselves! However, our main focus is on delivering on what we have. Getting that right is our number one priority.

RSC: The UK of course has an important advantage of been very close to local and regional energy markets. Do you foresee your gas been sold regionally, nationally or within the wider European markets?

AA: We are looking at supplying directly to customers in our core areas and via the gas grid.

RSC: What company milestones in the coming 6-12 months should our readers look out for?

AA: The next steps are pilot production at Keele in Staffordshire and we are on-site there now. Next will be a pilot site on our Point of Ayr acreage in North Wales. In 2011 we are looking at establishing our first full commercial production site. In the meantime we continue to evaluate the potential of our acreage for shale gas and will update the market on this in due course.

RSC: Many of the readers will be interested in the financial position of IGas, can you shed some light Andrew on your finances: debt/equity ratio and available cash reserves. How healthy is your balance sheet in ensuring your can successfully finance your future developments?

AA: We currently have no debt and at the end of 2009 had £17.5M in cash on our balance sheet, enough for our programs for 2010 and 2011.

RSC: You have a strong institutional investor base Andrew, how important to companies like IGas is having patience and knowledgeable investors onboard?

AA: We are seeing an increase in interest from overseas investors, particularly those that have had experience ofthe M&A activity around Shale gas in the US and CBM in Australia.

RSC: For our investor readers why should they look at £IGas as their next investment and a new stock in their portfolio?

AA: 807bcf of recoverable gas close to customers, demonstrated by pilot production. We have the gas; we now are about delivering it to surface and onto the market.

RSC: If I may Andrew I’ll wrap up by asking your one-word opinion (bullish, bearish or uncertain) on the future of the following. Bullish, Bearish or Uncertain?

RSC: David Cameron

AA: Uncertain

RSC: New Nuclear Power Capacity in the UK by 2025

AA: Bearish

RSC: $100 oil before the end of 2010

AA: Bearish

RSC: Recovered Gas Prices by the end of 2010

AA: Bullish

RSC: North Sea Oil

AA: Bearish

RSC: North Sea Gas

AA: Uncertain

RSC: AIM

AA: Bullish

RSC: US Unconventional Gas Focussed Independents

AA: Uncertain

RSC: European Unconventional Gas Focussed Independents

AA: Bullish

RSC: Thanks Andrew, more info can of course be found at: www.igasplc.com