As the UK election campaign continues, fracking is one issue that’s off the agenda.

The conservative government issued a moratorium on November 2, thereby putting AJ Lucas’ (ASX:AJL) partially owned well in the UK into limbo. The majority of other parties, including Labour and the Liberal Democrats support the ban.

AJ Lucas holds a 48 per cent stake in British gas exploration firm Cuadrilla which has a well in the Lancashire region.

Bloomberg analyst Will Hares said conditions were “ripe” for fracking in the UK and the moratorium would hurt the industry.

“Domestic natural gas demand has outstripped production since 2004, and the country has viable oil and gas resources in the ground,” he says.

“Assuming the practice remains halted, U.K. shale-gas opportunities that have been explored by Cuadrilla…aren’t likely to pay off.”


Not giving in

But AJ Lucas is undertaking a $46.3 million capital raise and private equity fund Kerogen Capital would take up more than half — $24.7 million. According to Bloomberg it already owns over 30 per cent of AJ Lucas, making it easily the largest shareholder.

In a letter to shareholders the AJ says the situation was not entirely bleak.

“It has been made clear by the current government that the resumption of activities is dependent upon certain regulatory bodies being satisfied that this activity can be undertaken safely and with minimum impact on the public,” it said.

“The Joint Venture operator (Cuadrilla) and our industry partners in the UK believe that a resolution to this is achievable.”

It stated that the gas was recoverable and of the highest quality and it would help the government’s environmental targets.

“The UK government has stated consistently that gas is an important component of the UK Government’s target to become carbon neutral by 2050. The potential for shale gas to be a new and significant energy resource is clear.”

Why raise money while the ban is in place? AJ Lucas said it had to meet funding commitments and start again rapidly once the ban ended.

AJ Lucas shares were 22 cents on August 22 but have since fallen 70 per cent. Nevertheless shares made a modest rise of 3 per cent this morning.


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