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Tremors run through UK fracking industry

Cuadrilla’s UK fracking resumption has been a stop-start affair

The UK government's refusal to relax regulations on earth tremors suggests that these will continue to slow progress in the hydraulic fracturing of a British shale gas well, leaving the nascent industry's future again in the balance.

Last week, a freedom of information request by Greenpeace's Unearthed publication revealed that Energy minister Claire Perry had written to the fracking firm Cuadrilla Resources after it publicly criticised the government's policy on tremors. Perry stated the current system was "fit for purpose" and the government had "no intention of altering it". 

Cuadrilla Resources started fracking one of two wells at its Preston New Road site in October, to assess the area's production potential. Other producers, including Third Energy, Igas and Ineos, are hoping to follow suit elsewhere in the country. But tremorssmall enough to be undetectable at the surface, but still greater than levels allowed by UK regulationshave regularly led to temporary suspensions in operations.

Cuadrilla told Petroleum Economist by email last month that it was "very encouraged by how well the shale rock is fracturing and will continue working within the conservative operating limits as part of the delivery of our operational hydraulic fracture plan". It remains confident in completing its first phase of fracking by the end of 2018, with initial results in early 2019.

"We have been fracturing along the full length of the horizontal well using smaller volumes of water to test the micro-seismic response of the rock. We are analysing those micro-seismic results along with the recent natural gas flow at the surface," said Cuadrilla.

Any tremor larger than 0.5 magnitude on the Richter scale requires the firm to stop and review operations. For instance, on 29 October Cuadrilla recorded a tremor of maximum 1.1 magnitude—still too slight to be felt at the surface, it says—but leading to an 18-hour suspension in operations.

Cuadrilla CEO Francis Egan feels the restrictions are too onerous —it was an interview in the Financial Times that drew Perry's response—and a threat to the industry's prospects. 

The British Geological Survey's central estimate for shale gas resources in northern England is 1,329tn ft³, even 5pc of which could supply the UK for more than 20 years based on current demand.

The UK minister did state in her letter: "I believe that shale gas has the potential to be a new domestic energy source, enhancing our
energy security by reducing our reliance on foreign gas imports."

Early efforts have been far from easy. Fracking ground to an early and abrupt halt in 2011, when well operations at another Cuadrilla site close to Preston New Road caused tremors and attracted environmental protests. Stricter regulations surround the current resumption, including lower permitted seismic activity thresholds. Fracking is still banned or suspended outside England.

Drillers under pressure

Drilling suspensions cost the fledgling industry dear. Cuadrilla's lawyers say the cost of maintaining fracking equipment on site is around £94,000/d ($120,000/d). The stoppages contributed to shares in Australian-listed mining services firm AJ Lucas, a 47.4pc owner of Cuadrilla, sliding in early November.

Cuadrilla's delays have a knock-on effect on its would-be peers. Third Energyhoping to be the next firm to carry out UK test fracking at its KM8 well, which lies on the edge of a national park near Kirby Misperton in Yorkshire, northern Englandis short of funds and may consider selling up, if it can find a buyer. "Low levels of activity" saw the firm's chairman quit in September.

The UK's Environment Agency approved a modified hydraulic fracture plan for KM8including measures proposed by Third Energy to minimise tremors and ensure fracking fluid does not leak into groundwaterenabling the company to formally apply for hydraulic fracturing consent. But it must first convince the government that its finances allow it to deliver on its programme, which may prove a struggle.

The company, 95pc owned by UK bank Barclays, said in late October it required further capex—of £14mn, of which £5mn would be needed over the next 12 months—in order to progress KM8 and its other assets. It appointed investment bank Lazard as financial advisor to seek new long-term funding from either partners or buyers.

The KM8 project will resume "when the business financing is complete, final consent has been received from the [government] and the frac spread becomes available on completing its current contractual commitments". The frac spread, or equipment, First Energy is planning to use is contracted elsewhere in Europe until Q2 2019.

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