Motley Fool Australia

Why the AJ Lucas Group Ltd share price crashed today

drilling for gas oil

The AJ Lucas Group Ltd (ASX: AJL) share price cratered today, falling more than 15% to 39.5 cents.

That wasn’t the lowest price reached though. The share price hit 38 cents earlier in the day – a 17% fall from Friday’s close of 46 cents.

AJ Lucas is a mining services company, offering drilling services to the coal and coal seam gas industries,  but also offers construction and engineering services outside the sector.

It’s been a rollercoaster ride over the past month, with the company’s shares spiking to 60 cents on October 4 and October 7, after AJ Lucas announced that Cuadrilla Resources had been given permission to drill and frack (hydraulic fracturing) up to 4 horizontal gas wells at the Preston New Road exploration site in Lancashire, the UK.

It’s only the second-ever permit since a moratorium on fracking was lifted in 2012. Third Energy received the first approval earlier this year for a project in Northern England.

The UK secretary of State for Communities and Local Government also advised that he could grant similar approval for another site – Roseacre Wood. AJ Lucas has a 46.85% in the Bowland licence that encompasses both exploration sites, and a 45% shareholding in Cuadrilla.

It’s a hot topic in the UK as you might expect.

The UK government imports more than 50% of its gas currently and that is expected to rise to 80% by 2020. The development of its own shale gas industry is seen as a virtual necessity by the UK government, restoring its energy security as a result of decreasing supply from the North Sea gas fields and dependence on imported gas.

The UK is estimated to have enormous amounts of shale gas, but progress has been hampered by public opposition and regulatory hurdles. Environmental groups are concerned the fracking will contaminate groundwater, not to mention that many are opposed to fossil fuels.

The local government had rejected Cuadrilla’s request for a permit, but that was overturned by the UK government – indicating the government’s determination to start a local gas industry.

Australian oil and gas companies Santos Ltd (ASX: STO) and AGL Energy Ltd (ASX: AGL) have faced similar opposition here, with AGL giving up the fight earlier this year in Queensland and NSW.

Metgasco Limited (ASX: MEL) won a court case against the NSW government, but shareholders voted to accept $25 million from the NSW government late last year to buy back three CSG exploration licences. Victoria has already banned drilling for coal seam gas (CSG).

Foolish takeaway

It looks like a rocky road ahead for AJ Lucas shareholders. UK environmental groups aren’t likely to lie down quietly and could potentially tie up gas drilling for ages. That’s the most likely reason for shares sinking today.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of June 30th

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Related Articles…