As any pioneer in their industry will tell you, being the first to do something comes with its highs and lows. With all the excitement of being the first to break new ground, develop new technology and create industry defining projects, comes the stumbling blocks of regulatory assessments, gaining approval and local stakeholder protests.
Cuadrilla Resources, the British shale explorer, was the first company to complete hydraulic fracturing in the UK and is keen to complete further exploration in Lancashire to determine whether the large quantities of much needed gas can be extracted. While there is huge potential for shale gas resources across the UK’s northern basins, a sufficient amount to change the UK energy landscape according to Cuadrilla CEO Francis Egan, the infant industry is subject to deep public scrutiny and rigorous assessment as it progresses towards the final goal of commercial development.
Hydraulic fracturing or ‘fracking’ involves injecting water, sand and chemicals at high pressure into rocks deep underground to unlock trapped gas.
When RGN caught up with Egan in London he discussed the natural gas potential in Lancashire, Cuadrilla’s best practices in its environmental and community work, the current UK energy climate and what the future holds concerning government approval and the prospective UK shale gas industry.
Cuadrilla was formed in 2007 by a small group of geologists who met through Birmingham University. According to Egan, they were the first people to recognise that shale gas was not confined to the US and immediately began desktop studies looking at prospects across Europe, eventually deciding to focus on the UK. They applied to the Department of Energy and Climate Change (DECC) and, having the benefit of being the first mover, were granted a large licence area of 1100km2 in Lancashire.
“One of the areas they [the founders] looked on was the UK and in particular the Bowland Shale Basin in Lancashire, they were the first to recognise the potential of this,” Egan explained. “They got a very large licence area to explore. To put that in context in the most recent 14th round of licencing the blocks on offer were 100km2, a tenth of the size, that’s the advantage of being the first entrant.”
A number of wells were subsequently drilled, partially fractured and the gas from one was tested. Based on the results, Cuadrilla concluded that it had at least 200 trillion cubic feet (TCF) in the ground solely in Lancashire. The DECC commissioned the British Geological Survey to conduct an independent assessment after hearing Cuadrilla’s results. The assessment surpassed Cuadrilla’s estimations of the shale potential in the north of England.
“They concluded at the end that there wasn’t 200 TCF in Lancashire there was 1,300 TCF and it didn’t stop there. The shale gas goes right through Lancashire, Yorkshire and the Midlands. There’s an enormous amount,” Egan compared the BGS estimates against the total UK gas demand per annum currently being approximately 3 TCF.
However, despite all of the surveys and geological assessment the biggest question remains – how can this gas be safely accessed with environmentally responsible processes? Egan feels that this can be demonstrated best if Cuadrilla is allowed to drill some wells and test the flow of gas in Lancashire.
Since that time Cuadrilla had planning permission for its two proposed exploratory sites rejected by Lancashire County Council’ s Development Control Committee although one site had the approval of the Councils Planning Officers. Cuadrilla has appealed the decisions and is awaiting a final decision, from Secretary of State Greg Clarke, which is expected by early October this year.
Egan has moved the headquarters from Lichfield to Lancashire to be the only UK shale firm to be based where they are operating. It is a small firm with around 25 employees but holds one of the largest acreage positions in the UK with its Lancashire licence area and has also been awarded acreage in Yorkshire.
Cuadrilla wants to set the benchmark as a model company in shale gas exploration in the UK. Egan is basing this on three key areas. From a technical aspect there is a lot of expertise at the company, they are the first movers, they are the first to have drilled and fracked wells and the first to do almost anything in the UK shale game.
“Our investors [AJ Lucas & Riverstone LLC] have huge experience of shale in the US and we can bring a lot of that expertise here, from a technical point we believe we are the best in the UK.”
Egan and his team have had to work extensively to keep the local community informed and interact positively with them having faced significant protests from local groups.
“We clearly have a lot of experience in community interaction and not all of it has been easy. We have sent out tens of thousands of newsletters in Lancashire and have spoken to thousands of people through our community engagement meetings.”
The third branch is the regulatory side and the stern environmental assessments Cuadrilla’s plans have undergone.
“We were the first to be awarded Environment Agency environmental permits in the UK, and we will hopefully be the first to drill a horizontal well in the Bowland Shale. We think we have set a high e standard in meeting the UK’s robust regulation requirements and we want to maintain that.”
Cuadrilla applied to drill eight wells at two sites, with horizontal wells at each which will be the first such horizontal wells drilled in the UK. Egan is hoping that, if approved, they can start construction at the site this year and be drilling and testing wells in 2017. He feels their case for the appeal is ‘exceptionally’ strong on technical and safety terms.
In the current energy climate, with oil prices showing a slight recovery from the depths of early 2016 and the UK importing over half of its LNG, Egan believes Cuadrilla are well positioned to enter the market.
“From our narrow view of the world having a period of low prices now is a good thing because we are not producing anything and the cost of services has reduced in line with the oil & gas prices, we have funding in place to complete our exploration,” however even the established US shale industry is being squeezed by the low oil price, something Cuadrilla will have to bear in mind as it progresses to production.
“The scale of this resource is such that we are looking at a 30-50-year life span due to its enormity. We are interested in the long term supply and demand price position, whatever way you look at it the UK has a gas deficit – we are importing half of it already and North Sea oil is falling off a cliff.”
One of Cuadrilla’s biggest challenges is being able to compete with imported LNG and Egan believes this is fundamental to the UK shale industry. “We believe we will be cost competitive with LNG. We believe we can get it out the ground and get it into a pipeline cheaper than it can be imported.”
On a local level the company is facing opposition from groups based on the environmental and community implications of fracking. Egan sought to reassure local stakeholders of the importance of these matters to Cuadrilla’s operations.
“The level of assessment that has gone into these initial exploration sites is unprecedented. The range and depth of the assessment is very broad, it’s been studied in great detail and you could argue in more detail than the development itself warrants, but the view is taken by everyone including ourselves, we should do it in great depth.
“We have conclusively demonstrated through our assessments that this can be done safely.”
Cuadrilla’s community interaction programme spans a variety of angles. The shale industry, through its representative body UK Onshore Oil & Gas, has committed to give £100,000 into a community fund for every exploration site. Egan has taken a step further, being the first company to put more than one exploration well on site, he has committed to £100,000 for each well that is drilled and fracked – irrespective of success.
“We recognise that the nearby community will experience some traffic and noise inconvenience, albeit for a relatively short period of time, and we are making an effort to contribute to the local community even at the exploration phase.”
Egan explained that if the industry hits commercial production it is likely to pay between 30-60 per cent tax on revenues and part of that will stay in the local areas through sovereign wealth funds. Secondly, Egan believes the industry will create tens of thousands of jobs across the north of England.
“This area could be the power behind the ‘Northern Powerhouse’ given that it stretches across the north of England. There will be tens of thousands of jobs if the area is developed.”
Further to that the company has relocated to Lancashire to be closer to the local supply chain. Cuadrilla will continue to seek to work with drillers, waste management assessors and engineers based near its operations. Going forward Egan believes that the progress made in the US shale industry offers comparatives for what can be done in the UK – over the last 10 years the US has become self-sufficient in oil, redressing the geopolitical energy landscape. There were delays however, it took 10 years of drilling, testing and perfecting of techniques to build a structure for the success it brings today.
“There [the delays] were more technical based, perfecting drilling and fracturing, here it is more political about planning and allowing people to get used to the idea once they have the facts.
“If we can get the go-ahead on the planning side then we can get up the technical learning curve much quicker and take advantage of that. I was in the US recently and didn’t see anything that I didn’t think we could do in the UK.”
Egan’s focus for this year is to get approval and begin work on the exploration sites in Lancashire The added awarded acreage in Yorkshire will make Cuadrilla, along with Ineos, the largest operators across the North. Cuadrilla will have major positions across three main geological basins – Bowland, the Gainsborough Trough and the South Cleveland Basin in Yorkshire.
Egan is hedging his bets on approval this year, “We will plan what we do following on from success in those wells, not pre-judging it but you have to plan for success, and we will look at how to move from appraisal into production and commercial development.”
“In 10 years, if this works, you will see the same kind of transformation emerging in the UK [as the US]. The potential is there. It’s not the answer to all of our energy problems but it could make a very significant contribution.”