AIM-quoted IGas Energy (IGAS:AIM), which has a portfolio of unconventional and conventional oil & gas assets in the UK, advanced 3.6% on news the UK government is introducing tax breaks for shale gas operators.

IGas has a large acreage position in the Bowland shale in Lancashire where last month private firm Cuadrilla farmed out 25% of its interest to energy giant Centrica (CNA). A report from the British Geological Survey suggests there may be 1.3 trillion cubic feet of natural gas in the north of England alone with a significant proportion contained in the Bowland. Drilling and hydraulic fracturing or 'fracking' to test this potential is expected later this year. We looked at the shale 'revolution' in detail in June.

According to chancellor George Osborne the incentives would make the UK the 'most generous' regime for shale gas in the world. The tax allowance would effectively reduce the tax payable from shale output to 30% from the 62% levy on production from conventional wells. Called a shale gas 'pad' allowance, it is expected to go into the finance bill next year and would last for the lifetime of the relevant shale well.

Broker Cantor Fitzgerald says its client Egdon Resources (EDR:AIM), which has an interest in another potential shale play in Lincolnshire, and IGas are likely to be the main beneficiaries of today's news. Egdon's shares are unchanged at 8.6p but Cantor analyst Sam Wahab has a 'buy' recommendation on the stock and a price target of 17p.

Wahab expects 'additional entrants into this market as experienced explorers look to take advantage of the raft of incentives to prove-up the UK’s significant resource base to meet long term energy demands against a backdrop of declining North Sea production.'

Fellow analyst Dougie Youngson, from VSA Capital, notes: 'While the market had been widely expecting tax breaks for the shale gas industry, we would agree with most consensus that this morning’s news is a very generous measure by the UK government and possibly better than expected.'

Issue Date: 19 Jul 2013