No guarantor for Third Energy’s fracking and drilling plans

180205 KM Eddie Thornton

Drone shot of Third Energy’s fracking site at Kirby Misperton, 5 February 2018. Photo: Eddie Thornton

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.

Work commitments for Third Energy North Yorkshire licences

Extract of OGA document on licence work commitments

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
190410 KM Steve Spy2

Kirby Misperton residents marking one year since Third Energy removed equipment from the KM8 site without fracking, 10 April 2019. Photo: Steve Spy

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.”

Clean-up costs

Jenny JonesThe 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.”

5 replies »

    • I think they’re hoping it will just blow over and go away as part of their gung ho reckless fashion experiment.

  1. The retention area agreement refers to future activity, but the second part of the above report links to clean up costs for frack sites, something I Gas have yet to have ( a thin link?).

    But they have conventional drill sites et al.

    So, who is responsible for existing oil and gas sites, should the operating company ( such as I Gas ) go bust, or not be funded for their promises ( to clean up the sites ).

    I suspect the answer is the same as for frack sites as conventional sites, but less understood. As the good Baroness probably knows.

    By the by, if the drilling companies buy their sites, then presumably, if they go bust, we are no further forwards with the issue, as there is no solvent land owner liable. Welcome to Limited Liability Companies, or indeed the answer for landowners.

  2. In respect of Third Energy all looks absolutely normal. A business up for sale and being maintained in an appropriate condition to attract a buyer. Shock/horror. Must do some yoga to quell my over excitement.

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