The government has confirmed that no guarantor is required to underwrite Third Energy’s commitments to frack one well a year in Ryedale, North Yorkshire, until 2022.
DrillOrDrop reported earlier this year that the company had made an agreement with the regulator to drill five wells and frack four in the area in the next five-and-a-half years.
But the most recent accounts for Third Energy UK Gas Limited, which holds seven licences in Ryedale, reported “significant doubt” about the company’s ability to continue as a going concern. Losses and liabilities were up and turnover down.
The accounts said Third Energy UK Gas Limited needed £14m of capital to develop the gas fields, of which £5m was needed in the next 12 months. They added:
“In addition, the company needs further cash injections even to operate without the additional capital expenditure”.
The parent company, the Cayman-based Third Energy Holdings Limited, was “not expected to provide the required funding”, the accounts said. And the ultimate parent company, Barclays PLC, said it intended to dispose of the Third Energy Group.
In January 2018, the Business Secretary, Greg Clark, delayed a decision on fracking at the KM8 site in Kirby Misperton until further tests had been carried out on Third Energy’s financial resilience. The company has not yet fracked the site.
Despite this, Third Energy has signed a retention area agreement with the Oil & Gas Authority setting out ambitious work commitments needed to retain the licences.
The commitments included:
- Frack the Kirby Misperton KM8 well by the end of 2019
- Drill and frack a 1,000m lateral well by 30 September 2020
- Drill and frack a 3,000 well by 30 September 2021
- Drill and frack another well into the Bowland formation by 31 December 2022
- Drill a well in licence PL079 by 31 December 2023
- Drill an off-structure well into the Bowland formation from a new well site in licence PL081 by 31 December 2024
In a written parliamentary question, the shadow business secretary, Rebecca Long Bailey, asked the government if the Oil & Gas Authority had assessed whether Third Energy required a guarantor to meet these work commitments.
The energy minister, Claire Perry, replied that no guarantor was needed because the work programme was not an additional risk:
“The OGA carries out financial assessments, as part of which a Parent Company Guarantee may be required, for all companies when there is a licence transaction to consider, specifically when considering licence award, licence assignment, changes of control, drilling consent, and field development consent. Applications for Retention Areas (such as those applied for by Third Energy) do not trigger a financial assessment.
“When a Licensee applies for a Retention Area within an existing Licenced Area, this allows the Licensee to undertake exploration and appraisal activities within a set time period, as set out in the related Retention Area Plan. An application for a Retention Area therefore does not create any additional risk, since the operations will have either been appropriately assessed already, or operations proposed will be financially assessed at such a point it is appropriate, for example, when applying for consent to drill.”
The Green Party peer, Baroness Jones of Moulsecoomb Green, asked the government this week who would be financially and legally responsible for cleaning up fracking sites if an operator went out of business.
The issue was raised at an industry conference last week by the Country Land and Business Association. It said the shale gas industry would struggle to find suitable sites if it didn’t solve the problem of landowner liability.
In a written answer, the energy minister, Lord Henley, replied there were precautionary measures in licensing, permits and planning permissions to ensure companies could pay for decommissioning.
But he said:
“If, despite the precautionary measures set out above, the operator was to become insolvent, the liability may fall to other appropriate parties, which may include other licensees or landowners.”