Centrica Said Close to Buying U.K. Shale From Cuadrilla

Centrica Plc is close to buying a stake in shale gas fields in England, a person with knowledge of the matter said, placing the U.K.’s largest energy supplier at the center of efforts to start producing the fuel.

Centrica is in the final stages of negotiations to buy a share in Cuadrilla Resources Ltd.’s licenses in northwest England, the person said, declining to be identified or discuss the terms before a deal is signed. Cuadrilla CEO Francis Egan said by phone he couldn’t comment. Centrica declined to comment.

Cuadrilla, chaired by former BP Plc Chief Executive Officer John Browne, has said it may have enough gas to increase U.K. reserves more than eightfold. While exploration has been slowed by environmental concerns, politicians including Prime Minister David Cameron have called for an acceleration in drilling to reduce dependence on gas imports and cut energy bills.

“This would be a real boost for U.K. shale development,” said Peter Atherton, an analyst at Liberum Capital Ltd. in London. “Centrica brings great resources and great upstream experience. It’s also the one company whose absolute core is making sure that the U.K. is well-supplied with gas.”

Bringing in Centrica, which produces gas from offshore fields in nearby Morecambe Bay, will help Cuadrilla finance development of its licenses after exploratory drilling confirms the potential of the deposits. For Centrica CEO Sam Laidlaw, shale offers another potential supply source as its existing fields decline. The Windsor, U.K.-based company owns British Gas, the largest seller of the fuel to U.K. households.

Centrica shares fell 0.1 percent to 362.7 pence in London. The benchmark FTSE 100 Index closed 1.2 percent higher.

Blackpool Tremors

Cuadrilla, based in Lichfield, England, said in 2011 its drilling caused two tremors in Blackpool where the Bowland Basin is located. That led to a moratorium on hydraulic fracturing, or fracking, the technique that blasts water, sand and chemicals at high pressure to release the fuel trapped in rock formations. The U.K. government lifted the ban in December.

AJ Lucas Group Ltd., an Australian engineering company, and private equity investor Riverstone Holdings LLC, where Browne is a partner, each have a 43 percent stake in Cuadrilla. Remaining shares are held by senior management.

“Discussions are continuing with a number of parties in respect of a potential farm-in or similar type investment” in the U.K. shale prospects, AJ Lucas said today in a statement. A transaction hasn’t been completed, the company said.

Cuadrilla delayed exploratory drilling at a site near Blackpool until 2014 from this year while it carries out environmental impact assessments. It expects production in 2015 or 2016, Egan said in an interview in April.

Eightfold Potential

The company says its licenses may hold 200 trillion cubic feet of gas. At an extraction rate of 30 percent, the maximum seen in U.S. shale fields, that would be enough to increase U.K. existing reserves more than eightfold.

“There are certainly indications that U.K. shale could be a resource the size of the North Sea,” said Laura Loppacher, an analyst at Jefferies Group LLC in London. “It’s been such a game changer in the U.S., everyone wants that to happen here as well.”

The U.K. plans to support exploration for shale gas because of the potential boost to fuel reserves, while people living near drilling will be compensated, possibly with lower bills, Energy Minister Michael Fallon said yesterday. The U.K. is preparing tax breaks for shale drillers as it seeks to diversify energy supplies amid declining production from the North Sea.

“There have been a number of optimistic estimates for the amount of shale,” Fallon told lawmakers in Parliament. “It clearly has enormous potential and it would be irresponsible of us not to encourage exploration.”

(Updates with closing share price in fifth paragraph.)
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