The French government cancelled all three exploration permits on shale gas fields Monday after Total SA (TOT) and U.S.-based Schuepbach Energy LLC, which hold the rights, maintained their intention to use a controversial technique to drill the potential fields that was banned earlier this year.

In a joint statement, France's energy minister Eric Besson and environmental minister Nathalie Kosciusco-Morizet said that the three permits, which represent all of the country's potential shale gas fields, had been cancelled after the two companies submitted a mandatory report about their drilling techniques in which they maintained their plans to use a process known as hydraulic fracturing--or "fracking."

Neither representatives from Total nor Schuepbach were immediately available to comment.

The decision represents a blow to efforts by the companies to exploit shale gas in France. A report issued in April following a government request said French shale oil and gas fields are potentially some of the most promising in Europe and banning exploration before the reserves are assessed could be detrimental to France's economy and labor market.

The French government banned hydraulic fracturing in May this year due to concerns about the technique's impact on the environment, after environmental activists staged nation-wide demonstrations to protest against the exploration and possible development of the fields, fearing the chemicals used in the process could pollute groundwater supplies.

Shale oil deposits are pockets of oil trapped in pores of sedimentary rock called shale. Miners use fracking in which water, sand and chemicals are pumped into the ground to crack open the rock and force the oil back to the surface. The government asked the national energy agency to cancel the permits, though they could be reattributed later, providing the companies seeking them formally commit not to use fracking.

French shale resources remain "largely" unknown due to a lack of exploration, and the potential commercial viability of the fields is also unknown because of a lack of tests, the report said.

Moreover, "the interest shown ... by major oil and gas operators and North American companies which are specialized in extracting shale hydrocarbons, as well as the investments they plan to make, show the scale of the potential," said the authors of the report, most of whom are mining engineers working for state agencies.

Of all the companies seeking to develop potential oil and gas reserves in France, representing a total of 64 permits, only Total and Schuepbach, which is Texas-based, maintained their will to use fracking while Toreador Resources Corp. (TRGL), which is seeking to explore and develop shale oil fields in France, committed not to use fracking. Toreador's permits have therefore been maintained.

As for other potential oil and gas fields, which are not shale, all the permits have been maintained.

The April report suggested a European study of fracking techniques be conducted, and also suggested the drilling of a limited number of experimental wells to assess the impact on the environment.

These moves should be under the strict control of a national scientific committee, with the involvement of experts from both France and abroad and local authorities, the report recommended. It also said that before the environmental impact is assessed, no fracking should be conducted at all.

"In two to three years, the acquired experience in our country as well as in Europe and in North America will allow to make rational decisions over the opportunity to extract oil and shale gas in France," the report said.

-By Geraldine Amiel, Dow Jones Newswires; +33 1 40171767; geraldine.amiel@dowjones.com

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