Shale Gas Explorer Says U.K. Production May Start in 2014

Shale Explorer Cuadrilla Says U.K. Production May Start in 2014
An employee cleans the base of the drilling rig with a high pressure spray at Cuadrilla Resources Ltd.'s shale gas exploration site in Singleton. Photographer: Paul Thomas/Bloomberg

Cuadrilla Resources Ltd., a U.K. shale-gas explorer that suspended drilling in northwest England after causing minor earthquakes, expects to resume work this year and said gas production may start in 2014.

“By the first quarter of 2013, we will be far enough along in the exploration program to say this makes sense to go ahead and apply for a full field development permit,” Cuadrilla Chief Executive Officer Mark Miller said in an interview. “Production could be under way as early as 2014.”

Cuadrilla, which says it’s found more natural gas trapped in the local shale rock than Iraq has in its entire reserves, plans to pursue hydraulic fracturing in three wells by the end of this year. The program hinges on getting final approval from Britain’s energy department, which called for an assessment of fracking after two tremors in the area last year.

Fracking, as the process is known, uses water, sand and chemicals to open fissures and has made the U.S. the world’s largest natural-gas producer. European nations have hesitated to endorse the technique because of concerns it may pollute water. France and Bulgaria have banned the practice.

“It’s very important that nobody gets it wrong in Europe,” Miller said. “We have to do this job right and demonstrate that it’s safe, environmentally sound and commercially viable.”

Cuadrilla, which also holds licenses in Poland and the Czech Republic, is privately held and backed by private equity group Riverstone Holdings LLC and Australia’s AJ Lucas Group. Its directors include former BP Plc CEO John Browne.

Move from U.S.

Miller was invited to join Lichfield, England-based Cuadrilla in 2007 and two years later moved to the U.K. from the U.S. where he had spent more than 20 years running a well-testing company. Prior to that he worked at oil services company Schlumberger Ltd.

Cuadrilla’s estimate that the shale it’s exploring may contain 200 trillion cubic feet of gas “represents the low end of the range,” he said. While only a fraction of that gas could be pumped, the deposits could add significantly to the U.K.’s proven, recoverable reserves of 9 trillion cubic feet.

The thickness of the shale in the region Cuadrilla is exploring is between 3,000 and 4,000 feet (1,220 meters), 10 to 15 times thicker than commonly found in the U.S., he said. What fraction can be recovered will depend on the number and location of production wells drilled in the area, he added.

“It’s a game changer if we can show that it works,” Miller said.

Suspend Fracturing

Cuadrilla suspended all hydraulic fracturing operations after causing two quakes early last year. The first tremor on April 1 measured 2.3 on the Richter scale. A weaker quake of 1.5 was recorded in May. The company released a report in November saying that fracking probably caused the quakes, prompting a government assessment.

The energy department recommended last month that fracturing should be allowed to resume in the U.K. as long as “robust” measures are adopted. These include setting a seismic threshold of magnitude 0.5 when drilling would stop, injecting small amounts of water before undertaking a full-scale fracking operation and constant monitoring for seismic activity.

“We agree with the Department of Energy and Climate Change recommendation to work at a level below what people can feel,” Miller said. “That’s what is really important here, because a lot of this is about perception.”

Preese Hall

Cuadrilla has no immediate plans to pursue fracking operations at its Preese Hall well, where the earthquakes occurred, he said.

Other companies pursuing shale gas exploration in the U.K. include IGas Energy Plc. The company said April 2 that it found a shale deposit at a field in the Ince Marshes in Cheshire. Poland, Europe’s biggest holder of unconventional natural gas, has granted more than 100 licenses to companies including Exxon Mobil Corp. and Chevron Corp.

IGas shares rose 5.2 percent to 65.5 pence today in London. The stock has risen 20 percent since the beginning of the year.

Commercial-scale development will require a “large financial partner” from the industry or banking, Miller said. There are no plans to sell out entirely, he added.

“When you go from the exploration program and cross over into development there is an enormous amount of money to be spent on operations,” Miller said. “When we get to that point, that’s a whole different scenario.”

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