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Centrica Buys Stake in Shale Gas Licenses in U.K.’s Bowland

Centrica Buys Stake in Shale Gas Licenses in U.K.'s Bowland
The deal makes Centrica the biggest company to enter the fledging shale industry in the U.K., where exploration was held up after Cuadrilla's drilling caused two earth tremors in 2011. Photographer: Paul Thomas/Bloomberg

Centrica Plc bought a 25 percent stake in Cuadrilla Resources Ltd.’s English shale gas licenses, the biggest company to enter the nascent U.K. industry.

Centrica, the largest U.K. energy supplier, will pay 40 million pounds ($63 million) in cash for the share of Bowland Basin licenses in Lancashire, northwest England, it said today in a statement. The Windsor, U.K.-based company will also pay exploration costs of as much as 60 million pounds.

The deal will help accelerate investment in the U.K. shale industry after exploration was held up because drilling by Cuadrilla caused two earth tremors in 2011. The company says its licenses may hold 200 trillion cubic feet of gas. An extraction rate of 30 percent, the maximum seen in U.S. shale fields, would be enough to increase U.K. reserves more than eightfold.

“With North Sea gas reserves declining and the U.K. becoming more dependent on imported gas supplies, it is important that we look for opportunities to develop domestic gas resources,” Centrica Managing Director Mark Hanafin said.

With its new partner, Cuadrilla will apply for planning permission for “half a dozen or so” new exploration wells, Francis Egan, chief executive officer of the Lichfield, U.K.- based company, said in a telephone interview. Drilling will start in the first half of next year, he said.

‘Strategically Sensible’

“Given Centrica’s market share in the U.K. gas market,” the acquisition “is strategically sensible,” Citigroup Inc. analysts Robert Coates and Andrew Simms said in a note. Even if no commercial discovery is made, the risk, “in the context of the group’s upstream business, is not material.”

Centrica rose 1 percent to 371.90 pence by the close of London trading, the highest level this month.

The company will buy the stake from Cuadrilla and partner AJ Lucas Group Ltd. Cuadrilla will hold 56.25 percent of the licenses and AJ Lucas 18.75 percent after the deal.

Jefferies Group LLC acted as sole financial adviser to Cuadrilla. Allen & Overy was legal adviser. IGas Energy Plc and Dart Energy Ltd. also hold licenses in the Bowland.

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