The UK’s leading energy retailer, Centrica, is taking a bet that shale gas resources in the country’s Bowland Basin are the real deal after making a hefty commitment in explorer Cuadrilla Resources Ltd.

Centrica agreed to pay US$63 million to acquire a one-quarter stake in a Bowland license held by Cuadrilla and Australian engineering firm A.J. Lucas. The retailer also committed $94 million for exploration and appraisal costs, which may be doubled if test drilling proves successful, according to terms of the transaction announced on Thursday. The deal implies a payment of US$1,800-3,000/acre, depending on whether the project proceeds.

Centrica’s investment “represents a significant step in our ongoing exploration program for natural gas within the Lancashire Bowland Basin,” said Cuadrilla CEO Francis Egan. He took over last year after retiring as president of BHP Billiton Petroleum’s global production division. “Centrica, Cuadrilla and Lucas recognize the exciting gas potential that lies within the shale rock in Lancashire. Natural gas from UK shale can create thousands of jobs, generate significant tax revenues, reduce our ever increasing reliance on imported coal and gas and make a positive contribution to the country’s balance of payments.”

Centrica brings to the venture “deep experience in all aspects of natural gas exploration, extraction and transportation,” he 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,” said Centrica’s Mark Hanafin, who manages the company’s international upstream business. “This transaction presents an attractive opportunity for Centrica to explore the potential and commercial viability of natural gas from shale in the UK, while utilizing its expertise as a responsible operator and developer of UK gas resources.”

Cuadrilla had held 75% of the exploration license; it relinquished 25% to Centrica, and Lucas retained a one-quarter stake.

Cuadrilla opened its doors in 2007 and two years ago claimed that the Bowland Basin may hold 200 Tcf of resources in place (see Shale Daily, Sept. 26, 2011). In addition to its ability to lure Egan from BHP, Cuadrilla is chaired by Lord John Browne, the aggressive former BP plc chief. Browne moved into the top spot after private equity firm Riverstone Holdings, where he serves on the board, acquired a 41% stake in the company.

To date, Cuadrilla has punched three exploration wells into the Bowland formation. The company received a big boost in December after British authorities cleared the way for unconventional drilling to continue in the basin (see Shale Daily, Dec. 17, 2012). The government a year earlier had halted exploratory drilling by Cuadrilla and other potential explorers following a series of small tremors thought to be linked to drilling.

Earlier this month Cuadrilla management said it planned to submit a modified planning application to the Lancashire County Council “to carry out a number of different diagnostic well tests” on exploration wells at the Banks site in the basin. “The tests will not involve hydraulic fracturing, as envisaged in the previously submitted planning application. The diagnostic well tests will help the company to acquire further valuable information on the characteristics of the shale rock and the fluid and gas locked within that rock.”

Samples of the fluid and gas are to be taken from the formations and then measurements would be performed on the in-situ pressures, which would be used with other data to plan future exploration. The decision to revise the production plans was taken after Cuadrilla reviewed the results of a 2012 geophysical survey of the play.

“The highly accurate, three-dimensional subterranean mapping data has proved extremely useful in helping Cuadrilla to grade target areas within the underground shale. As such, the company intends to locate sites where they propose both to drill and to hydraulically fracture exploration wells within areas covered by 3-D seismic mapping.” The actual testing is to take about three months total.

“The proposed diagnostic tests are a key part of the ongoing exploratory process of determining how much natural gas is trapped in the shale rock beneath Lancashire,” said Egan. “The valuable data that we can obtain from testing the well will help us to understand how much of the gas within the Bowland Basin can be viably recovered.”