Centrica acquires interest in UK shale exploration license

Centrica plc has acquired a 25% interest in the Bowland exploration license (PEDL165) in Lancashire from Cuadrilla Resources Ltd (Cuadrilla) and AJ Lucas for £40 million ($62.8 million) in cash. Centrica will also pay exploration and appraisal costs of up to £60 million. Cuadrillia will remain as operator.

The acquisition into the gas-bearing formation in northern England is a step towards Britain’s quest to bolster its declining natural gas production in hopes of recreating North America’s shale driven energy transformation.

The British Geological Society recently reported that the area around Blackpool may hold as much as 300 trillion cubic feet of gas, at least 50% more than was previously thought.

Mark Hanafin, managing director of Centrica’s International Upstream business, said: “With North Sea gas reserves declining and the UK becoming more dependent on imported gas supplies, it is important that we look for opportunities to develop domestic gas resources, to provide affordable sources of gas to our customers, and to deliver broader economic benefits to the UK.

“The Government’s clear commitment to developing the UK’s shale gas industry is creating the right environment for companies to invest and to deliver those benefits.

Earlier this week, government officials announced plans to review the UK's oil and gas industry for the first time in over two decades. The news followed the government's decision in December to permit the resumption of shale gas exploration, including horizontal drilling and hydraulic fracturing.

Following the exploration and appraisal phase, if Centrica elects to continue into the development phase a further contingent consideration of £60 million will become payable.

Implied metrics are $1,800/acre firm, $3,070/area including the contingent payment, “well above our estimate of current risked value of $320/acre,” noted Jefferies International Ltd. analysts in a note to investors Thursday.

“We estimate cash equivalent consideration (adjusting for portion of capital expenditure net to its own interest) is $132m firm, $225m including contingent. Cuadrilla’s acreage position is 293k acres and Centrica is acquiring 25%, giving implied metrics of $1,800/acre based on the firm cash and carry only, $3,070/acre including the success payment,” the analysts continued.

 

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