Cuadrilla’s major investor, A J Lucas, has said up to 72 lateral wells could be drilled from a shale gas site like Preston New Road, near Blackpool.
The Australian mining group is seeking to raise $46.3m in a share offer. The money will be used to fund its contribution to future operations at Preston New Road and to repay a loan from Kerogen.
In a presentation to investors, A J Lucas said there “may be considerable” resistance from the public and regulators to fracking. (DrillOrDrop report on record high for opposition).
It also warned:
“It is not certain that Cuadrilla will be able to recover hydrocarbons in its concession areas in the quantities or at a cost that makes production commercially feasible.”
And it said it should not be assumed that the government would lift the moratorium on fracking, imposed after record-breaking fracking-induced seismicity at the Preston New Road site in August 2019.
“Low hanging opportunity”
But A J Lucas described the Bowland shale as “a low-hanging opportunity” to overcome what it describes as the UK’s energy challenges.
The company said the formation “lends itself to “a stacked lateral well configuration”, targeting six already-identified production zones.
J-shaped wells could be drilled at vertical intervals of 200m, on a 2km pad, A J Lucas said. In each horizontal zone, up to 12 lateral wells could be drilled, each up to 2.5km long.
“Under this scenario, up to 72 lateral wells could be drilled over time from a single well pad, i.e. 12 lateral wells in each of 6 production zones.”
“The use of multi-well production pads would significantly reduce surface infrastructure requirements and make production management more efficient – this is attractive both economically and environmentally.”
A J Lucas, which holds 47% of Cuadrilla, said there had been “very encouraging” early data from the second well at Preston New Road, PNR2. This is despite only six stages being fracked as planned before the operation was suspended by regulators.
The content of gas from PNR2 was approximately 89% methane, 6% ethane and 2% propane, A J Lucas said.
“Once separated at surface from accompanying water the gas could with limited treatment flow directly into the local gas network.”
The company revealed that it needed funds for its share of outstanding costs for the PNR-2 fracturing and flow-testing programme and for ongoing costs in 2020.
Because of the fracking moratorium, A J Lucas said next year’s work programme at Preston New Road would be “significantly reduced”. But it said:
“Cuadrilla will continue to review and assess the prospectivity of other sites on its extensive acreage.”
The presentation included a detailed list of risks to investment in the Bowland shale. These included increased regulation of shale gas operations or a complete ban on fracking.
A J Lucas said the data from the site was:
“insufficient at this stage to conclusively evaluate the likelihood of commercial recovery of unconventional hydrocarbons.
“There is a risk that that unconventional hydrocarbon extraction and recovery may not be feasible at all in Cuadrilla’s concessions with existing technology”.
The company cited technical complications and faults that may be prone to tremors as a result of fracking, reservoir pressure, fracture complexity and conductivity.
There was a risk, the presentation warned, that the Bowland licence:
“may not be commercially viable due to the costs of the technology, drilling, equipment and other resources needed to extract the hydrocarbons from the reservoirs”
A J Lucas also warned about the prospect of future damage from fracking-induced tremors:
“If, following future hydraulic fracturing, further seismic events were to be felt at ground level, it is possible that Cuadrilla may see further claims sought for damages (whether real or spurious).
“This may result in additional resources taken to clear such claims, and if any real damages were validated, compensation may be made.
“While Cuadrilla has third party insurance in place under which it can seek relief to valid claims, it is possible that a claim or claims could exceed limits under these policies.”
If the Preston New Road site proved to be commercial, there was no guarantee about whether Cuadrilla would get approval for production, A J Lucas added.
The presentation also revealed that Centrica, which invested £60m in the Lancashire bowland licence, has an option to sell back its equity interest to Cuadrilla and A J Lucas. If Centrica opted to do this, it would forfeit another £46.7m investment which was to be paid after Cuadrilla met certain operational milestones.
Cuadrilla declined to comment on the presentation.
How would that support the industry? Strange question Martin when the share sale is to raise funds to allow Cuadrilla to continue at PNR, assuming they are allowed to, perhaps the question was too difficult for you! I do have the badge Martin, it reads “Frack Free Lancashire”, what does yours say, “Keep on Fracking”? Not assuming anything re your financial status but for all the areas and the industries you have said you have worked in through your posts you must have amassed some pension pot, then again perhaps not.
As you will find out when you become more familiarized with the forum …
You will note that the only things MARTIN hasn’t yet said he’s done, is play guitar with Eric Clapton and tap danced his way down the yellow brick road with Judy Garland .
JTL, there is time yet!
How much drinking water will be turned into radio active waste????
12 Nov 2019: AJ Lucas Shares Slammed On Funding Shortfall
Shares in would be UK fracker, AJ Lucas Group copped a hiding yesterday, plunging 25.5% to 6.7 cents at the close after it revealed a huge shortfall from shareholders to its latest fundraising.
The company told the ASX that it had only raised around 70% of of the money it wanted from institutional shareholders and is now looking to raise up to $8.1 million from its retail shareholders.
It was hoping to raise $46.3 million by issuing new shares, but instead raised $26.2 million.
Major shareholder, The Kerogen company, which already owns a 51% stake in AJ Lucas and holds about $76.5 million of its debt, provided most of that – investing $24.7 million.
AJ Lucas does not have many institutional shareholders on its registry. It offered shares at 6.5¢, a discount on the previous closing price of 9¢. Other institutional shareholders invested just $1.5 million of the offer.
The company said entitlements not taken up in the Institutional Entitlement Offer will be made available to Eligible Retail Shareholders who will have the ability to apply for additional shares by way of over-allocation during the Retail Entitlement Offer. The issue opens on Thursday, November 14 and closes on November 27.
The Company said it reserves the right to place the subsequent shortfall following the end of the Offer to provide additional funds for the purposes outlined in the Offer Documents.
AJ Lucas says it will use the money to fund testing of its gas fracking project in the UK but the British government recently place a moratorium on fracking, which has stopped activity at the Cuadrilla prospect partly owned by AJ Lucas.”
AJL shares are currently trading at 6.3 cents which is below the significantly discounted offer price of 6.5c based on the 9c at the time the offer was made.
That’s also just 1c over the all time low of 6.2c that they hit earlier this month.
That begs the question as to why any retail investor would now take part in that offer.
As the flow tests at PNR seem to have finished and have between them lasted a lot less than the 6 months required to trigger the Centrica/Spirit Energy 47.6 million contingent carry is it safe to assume that that won’t get paid?
It is starting to look as though funding future activity could become challenging for Cuadrilla.