Cuadrilla Resources, the only company drilling for shale gas in the UK, is in talks to sell a stake to a big energy group, underscoring the growing investor interest in the UK’s shale gas reserves.
Any deal bringing a deep-pocketed oil and gas major into Britain’s fledgling shale industry would bolster chancellor George Osborne’s hopes of replicating North America’s shale gas revolution in the UK.
Cuadrilla began to attract interest from larger rivals last month when the government gave the go-ahead to “fracking”, the controversial practice to unlock gas trapped in shale rock.
The company had been forced to suspend its fracking operations in the UK after they triggered two small earthquakes near Blackpool in 2011.
A deal would be a coup for Lord John Browne, the former chief executive of BP, who is a director of Cuadrilla. He is also a partner at Riverstone Holdings, the private equity firm that holds 41 per cent of the driller, with AJ Lucas, the Australian engineering group and management owning the rest.
A person familiar with the matter said Riverstone and AJ Lucas were in talks with a number of “well-known, well-established multinationals in the oil and gas space” on selling a stake.
He said the partners were not short of capital but wanted other entities to come in to “enhance the credibility of the venture”. Another person familiar with the matter said one of the companies involved in negotiations was Centrica, owner of British Gas. Cuadrilla, Centrica and Riverstone declined to comment.
In the US, the use of fracking, or “hydraulic fracturing” – which involves injecting vast quantities of water, sand and chemicals at high pressure to blast apart dense shales and release the gas trapped inside – has unlocked vast reserves long considered uneconomic. Surging production has driven down US natural gas prices and triggered hopes of an investment boom in chemicals and manufacturing.
The price of US gas is now about $3.3 per million British thermal units – 80 per cent below the all-time high of $15.8 per mBtu set in 2005. The price in Britain is three times higher at about $11 per mBtu.
But the involvement of a big industry player in the UK’s fledgling shale industry will worry campaign groups opposed to “fracking” in the UK. Environmentalists say the technique can contaminate water supplies and push up greenhouse gas emissions.
The UK is believed to have a large shale gas resource. Cuadrilla said in 2011 that it had discovered 200 trillion cubic feet of “gas in place” within Lancashire’s Bowland Shale – equal to more than 60 years of supply – though only a small fraction of that is likely to be recoverable.
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