UK fracking bid drives AJ Lucas surge
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.
Frequently Asked Questions about this Article…
AJ Lucas shares jumped after the company confirmed its British subsidiary, Cuadrilla, is holding preliminary talks with potential investors about developing the Bowland shale. AJ Lucas owns a 42% stake in Cuadrilla, and the news pushed its share price up about 24.5 cents (13%) to $2.08, according to the article.
Cuadrilla is AJ Lucas’s British subsidiary focused on shale gas exploration in the Bowland basin. AJ Lucas owns a 42% stake in Cuadrilla, so Cuadrilla’s funding and project progress are directly important to AJ Lucas’s prospects, as described in the article.
The article says Cuadrilla is in preliminary discussions with a number of parties and that a multinational’s financial backing would be a major step. British energy company Centrica has been named in reports, but AJ Lucas declined to comment and said the talks are at an early stage with no guarantee of any agreement.
The Bowland shale basin is estimated in the article to hold about 5.66 trillion cubic metres of gas — roughly enough for 60 years of energy supply — but only a fraction of that resource is expected to be exploitable.
Fracking involves injecting large volumes of water, sand and chemicals at high pressure to fracture shale and release trapped gas. It is controversial in Britain because Cuadrilla’s earlier activity near the Bowland basin triggered minor earthquakes in 2011 and environmental groups worry about risks such as water contamination. The article notes the UK government lifted a ban but emphasised strict tremor monitoring.
The article reports that US fracking unlocked large gas reserves and helped push gas prices down by as much as 80%, creating optimism that cheaper gas could support a manufacturing investment revival. However, the article also cautions that the UK’s outcome is not guaranteed.
The article highlights several risks: Cuadrilla talks are preliminary with no guarantee of funding; only a fraction of Bowland’s gas may be exploitable; environmental and regulatory issues (including past seismic activity) remain; and AJ Lucas’s fortunes are closely tied to the success of the Bowland asset. The company also previously required a capital injection from Kerogen Capital in late 2011, signalling past financial vulnerability.
The article mentions Centrica as a named multinational linked in reports (though AJ Lucas didn’t confirm it), Hong Kong hedge fund Kerogen Capital which injected capital into AJ Lucas in late 2011, and BHP’s petroleum boss Mike Yeager, who commented on the unique factors that made US shale developments successful.
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