Lucas hits new heights with UK shale gas asset
SHARES in AJ Lucas have surged after confirming reports that its British subsidiary, Cuadrilla, is holding talks with big investors, as Britain seeks to replicate the shale gas revolution that is under way in the US.
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.