Shell sets its sights on a leading role in fracking

Oil giant posts profit slide, reveals $90m Arctic rig hit and confirms its interest in UK shale gas deal
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The Independent Online

Shell has Britain's nascent shale gas industry in its sights after its chief executive, Peter Voser, declared plans to be a "leading player" in the fast-growing global fracking business.

Fresh from signing a £6bn shale gas deal with the Ukraine at Davos last week, Mr Voser said he was looking at a number of fracking opportunities across Europe, including the UK and Germany. Shell disclosed its interest in UK fracking after revealing a disappointing 6 per cent slump in profits to $27bn (£17bn) for 2012, as its US oil and gas business was hit by rising costs and falling prices. The shares fell nearly 3 per cent to 2,294p.

The company also revealed a $90m hit from the grounding of its Arctic drilling rig, the Kulluk, near the Alaskan coast on New Year's Eve, after it ran into a storm on the way to Seattle for routine maintenance. It said the Kulluk was not yet repaired, and it was "too early" to say whether its Arctic setbacks would be resolved in time for the drilling season, which runs from July to October. However, Mr Voser pledged his allegiance to the Arctic despite a series of setbacks over the years in the region, where Shell has invested $5bn but has yet to discover commercial quantities of oil.

Fracking, or hydraulic fracturing, is used to release oil and shale gas from rocks by blasting sand, chemicals and water into them. The practice is controversial because it has been linked to earthquakes and water pollution, but it has also enabled an energy revolution in the US, where new techniques have unleashed a wave of rock-based oil and gas. Shell already has significant fracking operations in the US and has secured contracts to produce shale gas in China.

The practice was temporarily banned in the UK after the country's first exploratory shale gas drilling site, near Blackpool, was linked to earth tremors. However, it was given the green light in December after an investigation concluded it should proceed under close supervision.

Mr Voser said he was "very excited" about the opportunities for fracking, but cautioned that there was no certainty of a deal being done in the UK, where he saw no prospect of any significant shale gas production for at least 10 years.

In comments echoing recent statements from British Gas owner Centrica and BP, Mr Voser said: "Given the population density, we see less development in European shale [than the US] and that also applies to the UK. I don't see the impact of shale as a major driver over the next 10 years although it might be after that."

Whether the UK could develop a successful shale gas industry depends primarily on whether it has the right geology, as well as the right regulation and tax structures, Mr Voser added.

He played down, without denying outright, reports that Shell is considering buying a stake in Cuadrilla, a company chaired by the former BP chief executive Lord Browne that caused the tremors near Blackpool and is leading the fracking charge in the UK.

"We are on the high level so don't link us to anything which is ongoing at this stage. That would be too early," he said.

The $90m Kulluk charge, to be spread over the fourth quarter of 2012 and the current quarter, covers salvage and other costs but no repair work, meaning that the eventual cost to Shell could be considerably higher.