Lucas hits new heights with UK shale gas asset
The mining contractor owns a 42 per cent stake in Cuadrilla. Its shares gained 24.5¢, or 13 per cent, to close at $2.08 on Monday, more than four times its record low price last September.
The potential backing of a multinational is seen as a major step to support Cuadrilla's efforts to exploit what is believed to be Britain's largest untapped shale gas reserve.
A British multinational, Centrica, has been named as a potential suitor but Lucas has declined to comment on that speculation.
"[Lucas] confirms that, as part of its and Cuadrilla's ongoing review of the options for appraisal and development of the Bowland Basin, discussions are being held with a number of parties," the company said in a statement.
There has been great interest in Britain's shale gas industry since the British government lifted a ban on the controversial practice of hydraulic fracturing, or fracking, that is needed to tap the resource.
Cuadrilla's activities were suspended around the Bowland shale basin in Lancashire when fracking triggered a series of minor earthquakes in 2011. The Energy Secretary said he was comfortable that fracking could be conducted safely - as long as monitoring conditions on tremors were observed - after receiving reports by several scientific agencies.
The Bowland shale basin is estimated to hold 200 trillion cubic feet of gas, enough for 60 years of energy supply - although only a fraction of that is likely to be exploitable.
In the US, fracking has unlocked vast gas reserves that were previously considered uneconomic. As a consequence, gas prices have fallen by as much as 80 per cent, raising hopes of a rejuvenation of US investment in manufacturing.
However, environmental groups condemn fracking, in particular the potential contamination of water supplies.
Lucas's fortunes are increasingly tied to the success of its potentially lucrative Bowland shale asset.
The company faced financial oblivion after an aggressive expansion of its contracting business just before the global financial crisis.
It managed to repair its balance sheet with a capital injection from the Hong Kong hedge fund, Kerogen Capital, in 2011.
Moreover, while the British fracking industry has been granted government approval, there is no guarantee that a thriving shale gas industry will emerge.
Frequently Asked Questions about this Article…
AJ Lucas shares jumped after the company confirmed that its British subsidiary, Cuadrilla, is holding talks with big investors about developing the Bowland shale gas asset. Investors see potential multinational backing as a major step forward. The stock gained 24.5¢ (about 13%) to close at $2.08, recovering from a record low last September.
Cuadrilla is AJ Lucas’s British subsidiary that holds exploration rights in the Bowland shale basin. AJ Lucas owns a 42% stake in Cuadrilla, making its fortunes closely tied to any progress Cuadrilla makes on the shale gas asset.
A British multinational, Centrica, has been named in media reports as a potential suitor, but AJ Lucas has declined to comment on that specific speculation. The company says discussions are being held with a number of parties as part of an ongoing review of appraisal and development options.
The Bowland shale basin is estimated to contain around 200 trillion cubic feet of gas — a figure the article says could equate to roughly 60 years of energy supply. However, the article also notes that only a fraction of that total is likely to be exploitable.
Fracking is the technique used to extract shale gas by fracturing rock layers. It’s controversial because environmental groups raise concerns — particularly about possible contamination of water supplies — and because the industry faces regulatory and public acceptance risks despite government approvals.
Yes. Cuadrilla’s activities around the Bowland basin were suspended in 2011 after fracking triggered a series of minor earthquakes. The Energy Secretary later said fracking could be conducted safely provided that monitoring of tremors and other conditions is observed.
The article points to the US experience, where fracking unlocked large gas reserves and contributed to gas price falls of up to about 80% in some cases. Those price drops helped spur hopes of renewed investment in US manufacturing — an outcome investors watch when considering shale plays.
AJ Lucas’s recovery is increasingly linked to the success of the Bowland asset, so investors face resource, regulatory, environmental and market risks. The company previously had severe financial stress and was recapitalised by Kerogen Capital in 2011, and the article cautions there’s no guarantee a thriving UK shale gas industry will emerge.
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