With the appointment of Jacob Rees-Mogg to lead the Department for Business, Energy and Industrial Strategy meant that he will be in charge of the energy and climate brief for the UK.

It seems that the coming freeze in winter is triggering lots of re-thinking of existing policies within the UK.

It has also set up for Liz Truss’s new UK government to invite applications for drilling licences to explore new fields in the North Sea, and lift the fracking moratorium, as part of efforts to curb high energy bills.

One of the companies which will benefit from the oncoming freeze is AJ Lucas (Lucas).

Theory:

Lucas listed in Australia holds interests in a number of licences all situated in the UK. It holds direct interests in licences through its 100% owned subsidiaries, and indirect interests through its 96% ownership interests in Cuadrilla which in turn holds interests in licences in its own right.

The main asset is Bowland license which has been fractured before and comes with existing infrastructure makes it an interesting asset to start fracking.

The market seems to have known 1st Sep 2022 that UK is most likely warming up to fracking. The share price has tripled in the last 6 months.

In a report from AFR, it seems that Lucas had spend £270 million (AUD 459m) on the project so far.

If we are zoom out to 2013 when fracking is still a reality, then the recent price rise has just been a blip in the whole scheme of things. Considering that natural gas and oil prices still remain sky high, the chance that Lucas would get back to 2013 seems reasonable if…

Risks:

• The public fear of triggering an earthquake due to fracking continues to hold back approval.

• The existing debt level of Lucas is also pretty high.

Comparison:

If we use another fracking company IGAS listed in the UK, the share price has also tripled in the last 6 months.

There is really any variant perception on Lucas.

If you believe that UK needs to produce more oil and gas domestically and that the government and public would get comfortable with fracking, IGAS and Lucas seems like the bet to ride this wave of domestic production approvals coming UK’s way.

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