Council planners in Nottinghamshire were initially unable to work out the value of a financial bond covering restoration of the Misson shale gas site because the operator, IGas, didn’t give them enough information.
The finding emerged in correspondence between the company’s consultant and Nottinghamshire County Council, released under a Freedom of Information Act request. It comes as councillors prepare to consider a financial guarantee at what could be Nottinghamshire’s second shale gas site.
The bond, to be used to restore the Springs Road shale gas site if IGas went out of business, is a condition of the planning permission, granted by the council in November 2016. It was added as a condition after opponents of the shale gas plans said they were concerned about IGas’s financial viability.
National planning policy says councils can ask for financial guarantees only in exceptional circumstances. The Springs Lane bond is the first required for a shale gas exploration in the UK. The target date for signing-off a legal agreement to establish the bond and five other conditions has been delayed three times.
Researcher and anti-fracking campaigner, Russell Scott, who made the FOI request, said the correspondence raised questions about whether the value of the bond was high enough and whether the bond itself covered an adequate range of risks, should IGas go under (link to guest post).
Tomorrow (Tuesday 21 March 2017) Nottinghamshire’s planning and licensing committee meets to consider IGas’s proposals for another shale gas site at Tinker Lane. Planners have recommended approval but with a bond covering site restoration (more details).
£600,000 is “appropriate guarantee” says IGas
According to the correspondence, IGas was asked to provide the council with details about the work needed to abandon and restore the Springs Road site and what it would cost. This would allow the council to establish what would be the appropriate value of the bond.
On 8 December 2016, three weeks after the committee agreed the condition of a bond, the IGas consultant, Heaton Planning sent the council a two-page document.
Headed Abandonment, decommissioning and restoration, this said:
“It is considered that an insurance policy for £600,000 is appropriate to provide a financial guarantee for the abandonment and decommissioning of a vertical well and horizontal well and restoration to existing land use at land off Springs Road, Misson.”
This appears to be made up of £480,000 for abandoning the two wells and £120,000 for restoring the site.
But the document provided no breakdown of how these figures were reached, apart from saying the vertical well would cost £260,000 and the horizontal £220,000. It listed what it called “requirements for plug and abandoning wells”. The items, which were not costed, are described as:
- Small rig mobilisation and demobilisation – to include rig, equipment, transport, crew
- Tubing
- Services as applicable to hole condition at the time of abandonment
- Personnel to manage operations
- Ancillary plant and equipment – cranes, vacuum tankers, lights etc; and,
- Cementing – services, crews, pump trucks, and materials as required.
Half of the second page was taken up with preliminary drawings of wells. The document then stated:
“All construction materials, services below the geotextile membranes and remaining onsite infrastructure will be removed from the site to be reused, recycled or disposed of at a suitably permitted waste disposal facility.
“The wellsite area will then be restored to its original condition”.
The document costed the restoration at £120,000. It did not provide a cost for any after-care, stating:
“An after-care scheme is not proposed – as it is intended that the Site will resume its use as part of the existing commercial business premises following restoration.”
PDF of Heaton Planning document
Concerns about “brevity” of submission
The following day, Nottinghamshire County Council’s interim head of planning, Jonathan Smith replied: “I am contacting you to raise my initial concerns regarding the brevity of the submission”.
Commenting on the consultants’ document, he said:
“[it] provides little more information than what you provided me in a telephone conversation which, from recollection, we had approximately one week after the meeting of Planning and Licensing Committee on 15 November.”
Mr Smith asks for specific details on exact equipment requirements, hire costs, durations, staffing and volumes of cement.
He said the council would be using a specialist consultant to give “an overview of the details submitted by IGas and, where necessary, to request additional details and clarification”.
He added:
“Based on the information you have provided in the attached, I consider it highly likely that this would be the case and so, in order that the process is not unduly delayed, I am giving you the opportunity to revisit these details now before we forward them for technical appraisal, and to provide far more details on costings than have so far been provided.
“Ideally, what I was expecting from you was the equivalent details that IGas would receive if it was going out to tender on this project.
“The County Council needs as much certainty as possible on the size of the restoration bond before the legal agreement can be signed off and, at present, I do not consider that the attached document [from IGas planning consultant] provides sufficient detail in this respect.”
PDF of Nottinghamshire County Council reply
“Commercial sensitivity”
IGas’s consultant replied on 13 December 2016 with a revised note for the bond. The email added:
“Given the commercial sensitivity to some of these figures we will need to arrange a meeting with your appointed agent and the drilling engineer at IGas.”
The revised note is same as the original, apart from the sentence:
“However, given the confidential nature of these commercially sensitive figures it is not possible to include a detailed breakdown for each element. IGas are agreeable for a representative of Nottinghamshire County Council to meet with IGas engineers to review the detailed cost breakdown so that confidence in the financial guarantee is provided.”
The consultant wrote again on 16 December 2016, now nearly five weeks after the planning meeting.
The email includes a spreadsheet “that sets out the parameters for the costings”. But the values were omitted because of “commercial sensitivity”.
The spreadsheet outlines a total of 12 days for abandoning the rig. It lists tasks and equipment but no other durations or costs.
The company’s planning consultant also said he was writing to “register IGas’s concerns” about the delay in drafting the legal agreement.
The email suggested that IGas had agreed to pay £1,500 for the council’s legal costs. It also offered to draft the agreement if the council was short of staff.
£50,000 contingency
According to the correspondence, the council and company met on 6 January 2017.
On 19 January 2017, Heaton Planning emailed Jonathan Smith with an “outline of works required to plug and abandon” the wells at Misson and the surface reinstatement.
In this document, the total value of the insurance policy had risen to £650,000. The extra £50,000 comprised a contingency of £30,000 for the vertical well and £20,000 for the horizontal.
The section on restoration gave more detail on estimate vehicle movements for clearing the site. It estimated 260 loads, made up of:
- 215: site stone
- 22: geotextiles and bentofix
- 16: cellar surface slab and vertical tank slab
- 2: perimeter pipe in drain
- 1: 45,000 litre tank
- 3: concrete surround
- 3: stone on access widening strip
The rest of the document remained the same.
Extended deadlines
Other correspondence released under the Freedom of Information request dealt with requests by the council to extend the deadline for completing the legal agreement, known as a Section 106.
This was originally set for 5 January 2017. But it was later extended to 31 January 2017, then 28 February. The latest deadline is 31 March 2017.
This afternoon a council spokesperson said commercial sensitivity prevented it from giving details about the current position of the restoration bond. The spokesperson said:
“Progress on the S106 is continuing to be made but it is not unusual for multi-faceted legal agreements like this to take a lot of time. This one is further complicated because it also includes a second local authority because in includes a lorry routing agreement.
“They are continuing to work towards the end of March deadline but will request a further extension, if required.”
Adequate funding and insurance?
Last week, the business minister, Jesse Norman, answered a parliamentary question on bonds from the Ulster Unionist MP, Tom Elliott.
Mr Norman said the Oil and Gas Authority checks at drilling stages that companies have sufficient funding and insurance. He added:
“BEIS officials are working with the industry’s trade body UK Onshore Oil and Gas to ensure that liabilities for shale wells are addressed in the rare circumstance where all of the companies on a licence became insolvent, and where no rescue mechanism for those companies could be found.”
Researcher, Russell Scott, said:
“The bond for Springs Road, Misson, has been increased to £650,000 but this still leaves many questions unanswered on whether this is enough and whether it covers every scenario of what could go wrong”.
Categories: Regulation
DRILL OR DROP? 