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James Stafford

James Stafford

James Stafford is the Editor of Oilprice.com

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How to Play the UK Fracking Game

Since it lifted the moratorium in December, the United Kingdom has taken its new fracking “freedom” to the limit, granting more than 300 licenses to explorers to frack onshore. And next year we’re looking at another round of licensing—the country’s 14th round onshore.

The Potential

The last week of April saw the UK’s Select Committee on Energy and Climate Change release the findings of a 2-year investigation into the country’s shale gas potential. The verdict is that the potential is very high, but extraction will be more expensive than in the US due to differences in geology, the need for carbon capture and storage infrastructure, and public dissent.

Before the end of this month, the British Geological Survey (BGS) should release its findings on the country’s shale gas reserves—and that’s what we’re really waiting for.
This is what we expect the findings to reveal: Between 1,300 trillion and 1,700 trillion cubic feet of shale gas. That would represent a massive increase over previous estimates of about 5.3 trillion cubic feet.

For now, all we’ve got to go in is the last survey, from 2011.

Shale Formations in the UK

There are two main petroleum systems in the UK onshore - a wholly Mesozoic petroleum system in southern England, and a northern England petroleum system involving long-lived generation from mid- to late Carboniferous source rocks and migration into reservoirs of Carboniferous to Triassic age. In Scotland, an older Carboniferous source rock has supplied hydrocarbons, retained within Dinantian (Lower Carboniferous) reservoirs (from the 2011 survey).

There are 7 onshore basins/areas we’re looking at, but it’s the Bowland shale (Craven Basin, around Blackpool) that we’d put our money on. Experts are speculating that the Bowland shale may contain up to 1,000 Tcf. 

•    Wessex Basin: some oil and gas production here from the Wytch Farm, Wareham and Kimmeridge fields (Jurassic and Triassic reservoirs)
•    Weald Basin: on trend with Wessex, also already producing oil and gas (the largest field is the Singleton Oilfield)
•    Cheshire Basin: This basin offers the best prospects and has unlicensed acreage; here we have the greatest untapped shale potential with the Holywell Shales (Namurian) and the Westphalian Oil Shales, 
•    Cleveland Basin: The onshore component of the Southern North Sea Gas Basin
•    West Lancashire Basin: A Permo-Triassic sub-basin that forms the onshore part of the East Irish Sea Basin
•    East Midlands Province: Several concealed Carboniferous sub-basins, with a number of producing fields
•    Midland Valley of Scotland: A proven petroleum system utilizing Dinantian oil shales as source rocks and interbedded sandstones as reservoirs.

Who’s On the UK Fracking Scene Already?

Right now, there’s only one major on this scene, and overall this is a game for the juniors willing to take a risk and be rewarded with an eventual buyout that pays off.

Major BP has downplayed the UK’s shale potential, and Shell has opted to sit this one out as well. In early May, Shell made its position clear, opining that it wasn’t keen on the uncertainty of the UK’s potential and as such would sit this one out and wait and see what other explorers come up with. To wit, Shell said that the UK would have to face stiff competition (particularly with Russia and Ukraine) and “nobody even knows whether the gas will flow”.

The only bigger player on the scene is the UK’s own Cuadrilla Resources, which got some nice backing in early 2010 from Riverstone Holdings via a Cayman Island joint private equity fund with US asset management giant Carlyle. Together, they hold a 40%+ stake in Cuadrilla. So, the company’s got capital to explore and it’s already drilled six wells in the Lancashire area.  Cuadrilla’s fracking has been a bit rocky. It started and then was forced to stop under the moratorium, but now it’s moving full steam ahead with renewed permission to continue fracking.

But the company has taken some serious losses—more than its revenues, in large part due to the moratorium that delayed operations. But now that’s its drilling again, there the potential is pretty high.

But this is what we like—again, it’s Bowland. Cuadrilla says it has some 200 Tcf of gas-in-place in its section of the Bowland Shale. The optimistic scenario is that first production could start in 2014. 

Meanwhile, the rest of the playing field is open to a smattering of small companies willing to gamble on UK shale. These include:

•    IGas Energy: A partly Chinese-funded company on the “Alternative Investment Market”; raised £23 million earlier this year to fund the drilling of 2 oil wells to appraise its shale resources (this is the biggest of the small dogs on the scene)
•    UK Methane: Plans to explore for shale in the Welsh valleys, but it owned by UK Onshore Gas (there’s a long chain of ownership here that traces back to Welsh entrepreneur Gerwyn Williams)
•    Australia’s Dart Energy: Holds the largest shale acreage in the Bowland Basin and is a leading coalbed methane company that is making a new move towards shale on this same acreage (and it’s actively seeking partners here)
•    Australia’s Eden Energy Ltd. (Adamo Energy): Eden's UK gas assets, which comprise in total joint venture interests in 17 PEDLs and 100% interest in a further 3 PEDLs in South Wales, Kent and Bristol/Somerset covering a total area of more than 2,100 sq km (approximately 510,000 acres. Eden is expected to start shale exploration this year

UK License Areas

Portfolio of UK Licenses

There are a number of companies who have exploration licenses on land that may contain shale, though they have not so far expressed interest in shale exploration—that could change with the release of the new geological survey, and with drilling success by Cuadrilla.

This is the acreage you need to look at, while keeping an eye on Cuadrilla’s progress. Recently it announced it would drill its first shale exploration well this summer in the southeast. 

Public Protests Will Continue to Pose a Problem

No one knows this better than Cuadrilla, whose earlier fracking activities led to widespread protests in the northern county of Lancashire due to small earthquakes. In fact, it was this incident that led to the imposition of a fracking moratorium in 2011. 

To appease the public, there have been a number of expert reports over the past year alleviating fears of water pollution and earthquakes associated with fracking. These reports, emanating from Durham University, say that fracking is not significant in causing earth tremors or water contamination. The key argument is that most fracking would be done at depths of 2-3km below the surface and therefore would not contaminate shallow aquifers which lie above this. In terms of tremors, out of hundreds of thousands of fracking operations, small tremors felt on the surface were caused in only three cases, and that tremor incidents are much lower than with mining, geothermal activity or reservoir water storage.

Recent reports suggest the Government will encourage developers to offer sweeteners to communities close to fracking sites, most likely by reducing energy bills or investing in new community facilities.

And for investors, there should be some deal sweeteners coming online soon in the form of tax breaks.

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