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Share News for BP (BP.)


Share Price: 408.15Bid: 408.10Ask: 408.25Change: 5.60 (+1.39%)Riser - Bp
Spread: 0.15Spread as %: 0.04%Open: 407.60High: 409.50Low: 402.00Yesterday’s Close: 402.55




Doubts raised about giant UK shale gas find

Fri, 23rd Sep 2011 15:11

By Tom Bergin

LONDON, Sept 23 (Reuters) - Experts have cast doubt on
claims of a giant shale gas find in northwest England, leaving opponents to accuse the company behind it of painting an excessively rosy picture to win political support for the controversial project.

Cuadrilla Resources is owned by Australian drilling company AJ Lucas and private equity firm Riverstone, and has former BP Chief Executive John Browne on its board, said on Wednesday it had found 200 trillion cubic feet of gas in place at its licences in Lancashire.

The announcement made front page news in the UK, with one national newspaper predicting that Blackpool, the fading seaside resort nearby, would become another Dallas, and a local journal celebrating a 'gas gold rush' and 'jobs bonanza'.

Even discounting the find to allow for the fact that typically only around 20 percent of gas locked in shales -- rocks with low permeability which require considerable coaxing to give up their treasure -- is recoverable, the find would classify as one of the biggest gas discoveries in the world in the past decade.

The news was welcomed by some politicians who see the project as a boost to UK energy security, with North Sea reserves declining sharply. But it was met with dread by environmentalists who say the drilling process behind shale gas --known as fraccing -- can pollute ground water.

Yet the excitement may be premature.

The resource estimate has not been independently verified and the company has so far only drilled two wells in the basin.

Even though it says it has taken account of data from another three wells drilled 10-15 years ago by another company, which chose not to develop the area, some experts are not convinced.

'It seems an awfully large number to extrapolate (from so few wells),' said Jeffrey Callard, Assistant Professor at Mewbourne School of Petroleum and Geological Engineering, at the University of Oklahoma.

Steve Holditch, Professor of Petroleum Engineering at Texas A&M University said one would need to drill dozens of wells to come up with a reasonable estimate of resources.

'With that little data, then the number is fairly speculative  It's a pie in the sky gas in place number,' he said.

However Cuadrilla CEO Mark Miller defended the estimate saying the area of gas-bearing rock was unusuallly thick.

'That's a pretty solid number .. Any time you have 3,000 feet of pay zone with gas under pressure, you have a lot of gas in place,' he said.

'It's a big number, I know it's shocking but we're trying not to look like the company that's being a promoter and overstating things,' he added.







REFINANCING

A recent refinancing conducted by one of Cuadrilla's co-owners also casts doubt on the size the Bowland basin find.

AJ Lucas owns 41 percent of Cuadrilla and has a direct 25 percent stake in the Bowland licences. After two years of losses, the company has struggled to come up with the money needed to fund its share of Cuadrilla's drilling costs.

Last week, it agreed a deal with a Hong Kong-based fund backed by Chinese state-controlled oil group CNOOC, to raise money to allow it to maintain its interest in Cuadrilla.

That deal values the Bowland licenses at around 140 million Australian dollars, a spokesman for AJ Lucas said.

By comparison, earlier this year mining group BHP Billiton bought U.S. shale gas producer Petrohawk, which had lower resources than Cuadrilla appears to be claiming, for $12 billion.

Petrohawk had proved reserves of 3.4 trillion cubic feet (Tcf)and a non-proved resources base of 32 Tcf. While it also had production, which considerably reduces risk, gas prices in the U.S. are around half the level in Britain, making fields in the UK potentially more valuable.

Critics of Cuadrilla's plan say the company's announcement may have more to do with politics than geology.

'They're obviously looking for further support and if you look at their presentation, they are obviously talking a lot about the benefits to Lancashire ... it looks like a pretty clear pitch to Lancashire County Council to give us planning permission,' said Doug Parr, policy director at Greenpeace UK.

The presentation given to local media on Wednesday talked of 120 million pounds in business rates being paid to local councils, 5-6 billion pounds in tax revenues to the government, salaries double current the Lancashire average and up to 5,600 new jobs generated across the UK.

'The economic case that Cuadrilla are putting forward does paint a Disneyland picture,' Sue McGuire, local Councillor at nearby Southport, who has opposed the plan on concerns about risks to local agriculture.

Shale drilling has been banned in France on fears of contamination of ground water and in the U.S., where the production of shale gas has rocketed in recent years, allowing the country to become self-sufficient in gas, opponents have been rallying political support to try and curb new drilling.

In August, environmental and public health groups petitioned the U.S. Environmental Protection Agency to force oil and gas companies to disclose the chemicals used in natural gas drilling.

In June, Cuadrilla suspended drilling after a government scientist linked a small earthquake to work at its drill site in northwest England. Cuadrilla said it did not believe there was a link.



(Reporting by Tom Bergin; Editing by Chris Wickham) Keywords: GAS BLACKPOOL/

(tom.bergin@thomsonreuters.com)(+44 207 542 1029)(Reuters Messaging: tom.bergin.thomsonreuters.com@reuters.net)

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