BUSINESS
WSJ
JULY 28, 2011

Potential Shale Oil in UK

Estimate shale gas resource in Europe


Fracking Pioneers Pierce Europe

By GUY CHAZAN

SINGLETON,  England--  Mark  Miller  was  hoping  to  lead  an  energy
revolution in the U.K. Then, earthquakes intervened.

Mr.  Miller,  an  oil-industry  veteran from Pennsylvania, is one of a
small  band of pioneers seeking to replicate North America's shale-gas
boom  in  Europe.  His  company,  Cuadrilla  Resources, has imported a
technology  used to great effect in the U.S. to try to turn Blackpool,
a seaside resort on the west coast of England, into a new Klondike for
gas.

The   technology,  called  hydraulic  fracturing,  or  "fracking,"  is
controversial.  It  involves injecting huge volumes of water, sand and
chemicals   deep   into   porous  shale  rock,  creating  fissures--or
fractures--that  allow  the  gas  trapped inside the rock to flow out.
Critics  worry  that  fracking  can  contaminate ground water and even
cause gas to leak from nearby household taps.

After   months  of  cajoling,  Mr.  Miller,  a  57-year-old  petroleum
engineer,  finally  thought he had managed to persuade the locals that
fracking  was  safe.  Then, this spring, the area around Blackpool was
shaken  by  two tremors. After the second one, Cuadrilla suspended its
fracking operations, pending an investigation.

Some   researchers  have  delved  into  possible  connections  between
fracking  and  earthquakes.  But Cuadrilla says no such connection has
been proved, and Mr. Miller says he is skeptical there is any link.

Even  so, one of the most closely watched energy projects in Europe is
now  on hold, and the publicity has dealt a blow to the image of shale
gas,  already under attack from environmentalists on both sides of the
Atlantic.

The  quakes left Blackpool-area residents "angry and distressed," says
Philip  Mitchell,  chairman of the local Green Party. "They've told me
they feel like guinea pigs."

Some  were more sanguine. "If they find gas then I don't think there's
anything  wrong  with  what  they're  doing," said one elderly man who
lives  in  the  small  village  of Singleton, a stone's throw from the
Cuadrilla  worksite.  "I  worked for years in the nuclear industry, so
I'm not bothered by these things."

Fracking  could  bring  a  measure of energy independence to Europe by
reducing its increased reliance on gas imported from countries such as
Algeria  and  Russia, which in the past has turned off the spigot over
pricing disputes.

But   Cuadrilla's  tribulations  show  the  challenges  of  developing
shale-gas  deposits  on the continent, where conventional gas reserves
have  declined. Among other problems: Europe is more densely populated
than  the  U.S., meaning a greater number of people would be likely to
live near fracking sites.

Mr.  Miller  compares  the  county  of  Lancashire, where Singleton is
located, to the Barnett, Marcellus and Haynesville shales in the U.S.,
where  vast  new  gas  reserves  unlocked by fracking have transformed
energy markets.

When  Cuadrilla  started  drilling  last  year, "we were amazed at how
thick the shale was," he says. "There was almost 1,000 feet more of it
than we'd expected--and the thicker the rock, the more gas there is."

The  widespread  use  of  fracking  was  a  game-changer for the North
American  energy  industry, allowing the U.S. to become a net exporter
of  gas  and,  in  2009,  to  overtake  Russia  as the world's largest
producer. Last year, the U.S. pumped 4.87 trillion cubic feet of shale
gas, equivalent to 23% of its total gas production.

Europe,  too,  is  thought  to  have  huge  production  potential. One
London-based  think  tank  recently  estimated  that there were enough
recoverable  reserves  of unconventional gas in Europe to meet its gas
demand "for at least another 60 years."

That  potential  has  attracted  some  of  the  world's biggest energy
companies.  Exxon  Mobil  Corp  has  been  drilling  for  shale gas in
northern  Germany.  ConocoPhillips  has  teamed  up  with a small U.K.
company, 3Legs Resources PLC, to explore in Poland's Baltic Basin.

But  there  are  obstacles.  Environmentalists  in  several countries,
including  the U.K., are pushing to restrict fracking. Though the U.K.
government  this  week  rejected  calls  for tough new controls on the
practice,  France  last  month  became  the  first  country  to ban it
completely.

Cuadrilla,  founded in 2007, was initially focused on shale gas in the
U.S.  But by then, land prices in the likeliest areas were already too
high.  So  it  shifted its focus to Europe instead. "We knew there was
similar   geology  there,"  says  Mr.  Miller,  who  was  one  of  the
co-founders.

The U.K., whose untapped shale reserves are thought to be substantial,
seemed  like  the  perfect  destination.  With backing from Australian
mining   company  AJ  Lucas  and  Riverstone  Holdings,  a  U.S.-based
private-equity  firm,  Cuadrilla  acquired  a license covering 280,000
acres in Lancashire's Bowland Shale in 2008.

Last  year  Cuadrilla  made  the U.K.'s first shale-gas discovery near
Blackpool.  In the ensuing months, it started fracking there to see if
it could get the gas to flow.

The  company  said  from  the  start that its procedures were entirely
safe.  To  prevent  leaks into the local aquifer, it is drilling 1,000
feet below the water table, underneath cap rock that has held back the
gas for millions of years.

"It would defy physics" for any of that gas to seep into ground water,
says  Mr.  Miller.  Cuadrilla  also  puts  an extra layer of steel and
cement into its wells to better isolate the exposed rock formations.

But in the end, the biggest threat to Cuadrilla's operations came from
an  unexpected source: the two small earthquakes that shook Lancashire
on April 1 and May 27.

In  Singleton,  people  had been generally supportive of fracking, but
some  changed  their  minds  after  the  tremors.  "They  should  have
investigated  how  it  could affect the earth before they went ahead,"
said one local woman.

Cuadrilla  assembled  a  team  of  independent experts to determine if
there was any link between fracking and the tremors, which it stressed
had caused no damage and no physical injury.

Meanwhile, Mr. Miller began a series of public meetings to try to calm
local  jitters. The Cuadrilla CEO says he didn't expect to be quite so
much  in  the public eye. "I thought it would all be about well design
and  raising finance," he says. "Sometimes you feel you're a spokesman
for the global oil and gas industry."

Write to Guy Chazan at guy.chazan@wsj.com

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