UK fracking bid drives AJ Lucas surge
AJ LUCAS shares have surged after confirming reports its British subsidiary, Cuadrilla, is holding preliminary talks with investors, as Britain seeks to copy the shale gas revolution under way in the United States.
Shares in the mining contractor - which owns a 42 per cent stake in Cuadrilla - jumped 24.5¢, or 13 per cent, to $2.08 on Monday, more than four times the record low it hit last September.
The potential financial 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. British multinational Centrica has been named but Lucas has declined to comment on the identity of its potential suitors.
"[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," Lucas said in a statement. "However, these discussions remain at a preliminary stage and the company is not in a position to advise whether any agreement will result from them."
Much attention has been trained on Britain's shale gas industry after Prime Minister David Cameron lifted a ban on the controversial practice of hydraulic fracturing, or fracking, used to tap the resource.
Cuadrilla's activities were suspended around the Bowland shale basin in Lancashire after the fracking triggered a series of minor earthquakes in 2011.
But reports lodged by leading scientific agencies in Britain led the nation's Energy Secretary, Ed Davey, to declare he was comfortable that fracking could be done safely, as long as monitoring conditions around tremors were strictly observed.
The Bowland shale basin is estimated to hold 5.66 trillion cubic metres of gas, enough for 60 years of energy supply, although only a fraction of is expected to be exploitable.
In the US, fracking - which involves injecting vast quantities of water, sand and chemicals at high pressure to fracture dense shale to release the gas trapped inside - has unlocked vast gas reserves previously considered uneconomic.
Gas prices have fallen by as much as 80 per cent, triggering hopes of a rejuvenation of a US investment boom in manufacturing.
But environmental groups have slammed fracking, with particular concern centred around the potential contamination of water supplies.
The fortunes of Lucas are increasingly tied to the success of its potentially lucrative Bowland shale asset.
It faced financial oblivion after an overly-aggressive expansion of its contracting business just before the global financial crisis hit, but repaired its balance sheet with a capital injection from Hong Kong-based hedge fund Kerogen Capital in late 2011.
While the green light has been given to the British industry, there is no guarantee that a booming shale industry will emerge.
BHP's petroleum boss, Mike Yeager, has emphasised the unique set of factors in the US that have allowed the shale drilling techniques to develop into an economic boom, including the right geology and existing extensive gas pipelines.