ALKANE Energy yesterday confirmed that it is in advanced talks with Egdon Resources to sell its onshore shale gas assets in return for shares, causing the share prices of both Aim-listed companies to surge.
If the deal goes through, independent power generator Alkane will own 40m shares in oil and gas explorer Egdon, equating to a 27 per cent stake.
“Alkane has been looking at options to exploit the shale gas potential of its 820km2 of exploration licences,” said Liberum research.
“The proposed deal with Egdon crystalises some value up front, while allowing Alkane to share in the future upside should its licence areas prove to contain exploitable shale gas.”
Alkane said in March it lacked experience in shale gas extraction and was in talks with potential investors who are better placed to tap the resources.
The UK’s shale gas industry has seen a spike in M&A activity over the past week, following IGas’ agreement to buy rival Dart Energy. No shale gas has been produced in the UK yet, but a recent government-backed industry study predicts that one third of the country’s energy use will come from shale gas in the next decade.
The government is set to launch another bidding round for licences later this year, enabling more companies to frack for shale gas across the country.
Egdon is also planning to raise £7m at 20p per share as part of the potential deal, via a placing of £6.4m and an open offer of £600,000. The deal is subject to finalisation and approval of the fundraising by Egdon shareholders.
Alkane’s shares closed 7.4 per cent higher, while Egdon closed over six per cent higher.
BEHIND THE DEAL
VSA CAPITAL | ANDREW RACA
1 Raca is head of the corporate finance team that advised Alkane Energy to dispose of its shale assets. Unusually, the team is now advising Egdon on its fundraising due to members’ shale knowledge.
2 Raca explains that VSA was initially doing a strategic review for Alkane last summer, but switched to Egdon once a potential deal had been agreed. “We had to manage the conflict carefully,” he told City A.M. Raca also advised on the aborted Dart Energy float last year.
3 Raca is a keen cyclist and either comes in to the City on his bike or rides in on his motorcycle for meetings during the week, before heading back home to Edgbaston in Birmingham for the weekend.
Andrew Monk is heading up VSA Capital’s corporate broking division for the deal. David Porter, Tom Sheldon, Richard Redmayne and Julian Erleigh are key players on the Cantor Fitzgerald team advising Edgon, while Liberum, led by Clayton Bush and Tim Graham, are advising Alkane. Nick Lyon and Alex Brennan at Hudson Sandler are giving Alkane PR advice, while Richard Darby and Anna Michniewicz from Buchanan are advising Egdon on PR matters.