Cluff's coal project gets exciting

It was exactly a year ago that we wrote about North Sea oil pioneer Algy Cluff's latest venture off the Scottish coast. He'd spotted an opportunity to exploit the thick bed of coal deep beneath the seabed through a process called Underground Coal Gasification (UCG). A handful of five-year licences had been snapped up and it was hoped his AIM-listed vehicle - Cluff Natural Resources - could begin commercial production in 2017.

In February, Cluff signed a memorandum of understanding (MoU) with American oilfield services giant Halliburton to develop its North Sea assets. A month later it raised £2.2 million from a share placing at 4.25p, which when added to the £1.2 million it already had, should last until at least the end of first quarter of 2016.

This week we've heard of "significant progress" at the Halliburton tie-up, and, after spikey sideways trading for the past year, investors chased Cluff shares up as much as 39% to 4.68p within 20 minutes of the market open Wednesday. That's their highest since March and comes less than four weeks after a plunge to an all-time low at 2.45p.

A decision by Lancashire County Council to reject planning consent for Cuadrilla to explore for shale gas near Blackpool was blamed for the sell-off. Cluff's Kincardine UCG project needs local planning approval, and investors are unhappy with this extra perceived uncertainty.

"We are excited about the prospect of continuing to develop our strategic relationship with Halliburton with a view to accelerating the development and commercialisation of our assets," said Cluff Monday. And it's easy to understand the excitement around the projects and MoU.

Halliburton is helping Cluff with new technologies and improving old ones to develop its UCG and Southern North Sea gas assets.

"The company and Halliburton are currently working together on a structure which will facilitate and accelerate the drilling of one or more wells on CLNR's conventional licences in the Southern North Sea," Cluff explains.

"At the same time Halliburton is providing technical and geological assistance in the development of CLNR's Southern North Sea assets and its Kincardine UCG project in the Firth of Forth, Scotland. This technical support is being utilised to develop the proposed submission of a planning application for a UCG production test at Kincardine."

Clearly, there's progress being made toward commercialising Cluff's gas assets, but equally important is progress on the planning application for Kincardine, the most commercially advanced licence in CLNR's UCG portfolio.

"We make no changes to our estimates or our 10p per share target price which assumes only a 10% chance of successfully commercialising one full scale UCG project," says Panmure Gordon analyst Colin Smith.