Regulation

Guest post: Liability lottery of onshore decommissioning

180320 KM Eddie Thornton

KM8 site at Kirby Misperton largely cleared of equipment on 20 March 2018. Photo: Eddie Thornton

Who pays for clean-ups and decommissioning if an onshore operator goes bust? It’s a question that is concerning MPs and landowners. In this guest post, researcher and anti-fracking campaigner, Ben Dean, looks at the rules for decommissioning and argues for tougher controls.


In January 2017, the business secretary, Greg Clark, delayed Third Energy’s fracking plans at Kirby Misperton in North Yorkshire and ordered a test of the company’s financial resilience.

14 months on, Third Energy had declared liabilities of £63.9m and we don’t have a decision on the resilience test. Third Energy’s onshore interests have been sold to a newly-incorporated company with a parent based in the Cayman Islands. And the concerns remain over what happens if an onshore operator cannot pay to repair any environmental damage.

Last month, the Country Land and Business Association (CLA) warned the shale gas industry that fracking would struggle if it didn’t resolve the problem of who was liable for clean-ups. Speaking at a seminar in London, the organisation said landowners needed reassurance that all costs would be covered in all circumstances.

So what are the rules and are they strong enough?

Rules for offshore decommissioning

A good starting point would be to consider what are the offshore decommissioning regulations.

The offshore industry is mature, with many thousands of wells and many decommissioned fields.

Yet there has been relatively little controversy over the decommissioning of these offshore fields.

I would argue this is because of the primary legislation for decommissioning offshore hydrocarbon installation: the Petroleum Act 1998.

Compared with the onshore industry, offshore has no Mineral Planning Authority (MPA) to issue planning permission and require conditions.

So, the 1998 Act imposes on the offshore industry conditions that I believe all MPAs should require on granting any onshore hydrocarbon exploration and development permission.

The 1998 Act requirements for Abandonment of Offshore Installations start in Part IV, paragraph 29.

In paragraphs 38 and 38A, the Act deals with financial resources and protection of funds for an abandonment programme.

In advance of granting permission to drill and develop a field, the Secretary of State requires:

  • A decommissioning plan
  • Proof that the operator has funds to be able to decommission the wells and installation infrastructure, including pipelines

Fish and marine life seem to be well protected.

Rules for onshore decommissioning

Let’s now compare the offshore regime with the regulations protecting people who live next to onshore hydrocarbon developments.

The 1998 Act offers no protection for onshore decommissioning.

So who is responsible? Three onshore regulators have separate interests in what happens at the end of the life of a well or field.

Bonds

The MPA – usually a county council or unitary authority – could require payment of a restoration bond, in case the operator went out of business before decommissioning was completed.

The bond could be part of a legal contract, called a Section 106 Agreement, which would become a condition of the planning permission.

But bonds are unusual in planning conditions for onshore sites.

The National Planning Policy Framework paragraph 205 (e) says MPAs should “provide for restoration and aftercare at the earliest opportunity, to be carried out to high environmental standards, through the application of appropriate conditions”.

But the NNPF then adds:

“Bonds or other financial guarantees to underpin planning conditions should only be sought in exceptional circumstances.”

190204 Misson Eric Walton 5

IGas site at Misson, Nottinghamshire. Photo: Eric Walton

Nottinghamshire County Council required IGas to pay a bond, set at £650,000, to cover the cost of site restoration at the shale gas site at Misson Springs. But a similar bond was not required by the council for the nearby shale gas site at Tinker Lane.

North Yorkshire County Council agreed a site restoration fund for Third Energy’s fracking site at Kirby Misperton of £160,000.

But no bonds or restoration funds have been required for onshore exploration sites including Preston New Road, Ellesmere Port, Harthill, Bramleymoor Lane, Horse Hill or Balcombe.

So at these sites, who would pay if the licensee went bust and/or insurers refused to pay on a third party liability insurance policy?

“Polluter pays”

Step up the Environment Agency (EA) and, it appears, the landowner.

In February 2019, senior civil servants were questioned about liability for onshore decommissioning by members of parliament’s public accounts committee (transcript of evidence).

190211 PAC1

From left: Emily Bourne, Alex Chisholm and Andy Samuel giving evidence to the Public Accounts Committee, 11 February 2019. Photo: Parliament TV

The North East Derbyshire MP, Lee Rowley, asked:

“If the company goes bust, what will happen?”

Alex Chisholm, permanent secretary at the Department of Business, Energy and Industrial Strategy (BEIS) said:

“If the company is no longer responsible or is no longer in existence, anybody else responsible associated with that—so, the Environment Agency, which is not one of our agencies, enforces a “polluter pays” principle.

Committee chair, Meg Hillier MP said:

“That sounds a little vague.”

Alex Chisholm replied:

“Ultimately I think the landowner has responsibility.”

BEIS later wrote to the committee to say if the holder of an environmental permit was no longer in existence, the Environment Agency had the ability to pursue former directors.

The department added that if this were not possible the EA would:

“identify if there were other appropriate parties who could bear responsibility, for example, the landowner.”

Taxpayer

The department’s statement on landowner liability looks straightforward in the context of environmental permits.

But some older oil and gas sites, developed before 2013, have never had an environmental permit. This means the EA has no remit over their decommissioning. The UK Oil & Gas site at Markwells Wood is one example. (DrillOrDrop report)

Markwells Wood 5 Ann Stewart

Markwells Wood site before the start of decommissioning. Photo: Ann Stewart

And it gets more complicated when you look at the rules on licensing. Here, there is evidence that the taxpayer holds the liability, not the landowner.

Most onshore licences have now adopted the 14th Round Model Clauses.

Section 20 of the model clauses deals with abandonment and plugging of wells.

Paragraph 13 of this section makes it clear that all casings and fixtures forming part of a well and left in position become the property of the Secretary of State when a licence is revoked or where work has been completed.

I think this clause, in effect, nationalises the liability for decommissioning if the operator went out of business.

Equalising the regulations

So what should be done to bring the protection of people living near wells onshore up to the level of fish and marine life offshore?

In my view, the requirements of the offshore industry to comply with Part IV “Abandonment of Offshore Installations” in the 1998 Act should equally apply to all onshore “Installations”.


DrillOrDrop always welcomes guest posts. Please get in touch if you have an idea.

9 replies »

  1. Thanks Ben, what you say exactly reflects what we are all beginning to see here now, that the onshore industry have no established enforceable responsibility for decommissioning their onshore well sites and will avoid the costs of that whenever they can.

    What we are also seeing is that the operators of the fossil fuel sites are continually extending their licences, even when they have not fulfilled their operational obligations, and we can perhaps see why, the costs and complexity of decommissioning are far too dangerous to address.

    They would much rather leave that legacy in the hands of the tax payer, so no change there.

    As you say, we must force the EA and the OGA to make the decommissioning bond enforceable and retro active.

    You say this, which leapt out of the page:

    “The department’s statement on landowner liability looks straightforward in the context of environmental permits.
    But some older oil and gas sites, developed before 2013, have never had an environmental permit. This means the EA has no remit over their decommissioning. The UK Oil & Gas site at Markwells Wood is one example. (DrillOrDrop report)”

    That indicates that a retroactive law must be enforced for both environmental and ecological damage restraints and conditions or such sites (how many others have no environmental permit?).

    It is clear, even more so than before, that the so called gold standard world class regulations do not exist for certain sites and that reclassifies that claim to a total falsity.

    • Good morning folks, its Sunday again, and its the 31st Sunday since fracking was supposed to have been resurrected in the UK and we all now know that fracking will not succeed in this country and that the broken coalition DUP/Tory government who were the fossil fuel industries sole source of centralised support, have now ceased their complicit railroading efforts on the fossil fuels industries activities behalf.

      We may think, that is fine, at last, it is all over, but as we see here every day, that would be forgetting the vast greed and political and corporate power of economic forces behind the fossil fuel influence in this country and across the world.
      Governments are still talking, yes, but not actually doing anything to transform the energy infrastructure towards renewable resources and away from fossil fuels. There is still zero movement on any substantial infrastructure change.

      The arguments against are:

      It is too expensive.

      It is too difficult.

      It is politically suicidal.

      It is contrary to the neo classical economic growth scenario.

      There are no economic incentives to transform the economy beyond the present monopolistic imperatives.

      It will rip apart the present polarised political system and the fear is that political and social chaos will result.

      The arguments for are:

      We have no other choice, because without a massive infrastructure energy change, no amount of fiddling around the edges of the problem will have the least effect.

      We are all ready exceeding 1.5 degrees of climate change warming, and the seas are rising, the natural ecological systems of life are all ready breaking up and failing and that is us too, we cannot remove ourselves from the planetary ecology and environment any longer.
      Without massive change to our energy infrastructure we will not get anywhere near the tipping point prevention targets and the financial and ecological costs will be exponentially worse in each year we fail to act responsibly.

      The old discredited neo classical economic growth scenario model is flawed to the point of suicidal insanity. The environment and the ecology of life that is the source of that wealth is not even mentioned in the present economical model, let alone considered, and it must be redirected towards a more responsible method at least, or nothing will ever change.

      The Earth is not a bottomless pit with endless resources and the life upon the surface is fragile, if we continue to ransack the planets natural resources, we will suffer for it far, far, far beyond the effects of this little short term inconvenience.

      The present representative democratic model of politics must also be totally redesigned from the bottom up and the top down.
      We act now while still can and while we have the political and social impetus to do so, tomorrow is too late, let alone 2025 or 2050.

      The public opposition towards further exploration and extraction fossil fuels for all those reasons we are now aware of in the UK has now become a nationwide and planet wide movement. There is now real pressure to force governments and corporations into acknowledging the results of this unprecedented acceleration towards a series of climate change tipping points, of increasingly disastrous ecological collapse after the other, and the disastrous effects on life on this planet.

      We are now well within the sixth major extinction of all life on the planet, and we have to point to our own activities for that. Our once close relationship to all the natural processes of life and ecology on this planet is now so far removed from our daily lives in this present exploitative system.

      • There are of course still very powerful economic and corporate forces that will attempt to keep everything just the way it is, and also a growing effort to subvert the present moves for change to take political and corporate advantage of it and transform everything towards their own profit motive agenda.

        An answer to our present problems may well be a direct democratic model rather than the present highjacked representative model.

        That means all of us must participate in policies and decisions to get the process of remodelling our entire relationship to the Earths ecology can be even started, let alone acted upon.

        If you think the last referendum on brexit was a pain, think of that every day and you will begin to see the difficulties of that, except that with the internet, it is at least technically feasible, but again that will need to be made very secure right from the start.

        Here there be dragons.

        So perhaps the real change we must make is to no longer expect any organisation, be it government, corporate, economic or political, to have any control over how we get out of this climate change trap and not put our confidence into any self styled and self serving organisation that will seek to profit from the change and subvert it to their own interests.

        In other words, we need to stand up for ourselves and the planet from now on, and not go back to sleep and hand over our own responsibility to someone else. We have seen where that has led us into this suicidal situation now.

        We must say never again, handing over our own responsibility to politics, corporations and self interested greed and profiteering are no longer a viable way to build the future for our selves and our children and for future generations.

        That will mean as Ben indicates, that it will mean enforcing both new and existing onshore environmental and ecological laws into action.

        Polly Higgins died tragically having dedicated her life to making ecocide a criminal offense, we must all push for that to be taken into law now, because that is a sure way of enforcing change, another method will be to strip corporations of the “artificial person” status, because a great deal of a natural person’s rights, that being you and me, are subsumed by those of an immortal “artificial person” rights and much of the destruction of the environment stems from that.

        This shows that we need to completely rework the law to suit the environment and the ecology.

        https://phys.org/news/2019-05-rip-environmental-laws-extinction-crisis.html

        This is an indication of the change we all must make to come to terms with our changing attitude towards the planet and its ecological continuance.

        Well, have a great Sunday with family and friends and perhaps as you enjoy the day, just think of how far we must all change individually, as well as collectively to reach a viable responsible attitude towards our children and future generations and the planet Earth that gave us all life in the first place.

  2. This is the Fracking Farmhouse about the decommissioning of the shale gas commissioner Natasha Engel.

    Enjoy!

    Enjoy!

    • Meanwhile back in the real world this is a compilation of Greta Thunberg speeches on the real problems that failure to deal with the future represents. The music is from the movie The Fountain by Clint Mansell.

  3. This is a DW documentary on the insect apocalypse.

    There has been a massive decline of 75% of insects in the last 30 years due to our stupidity and greed.

    It is insects that underpin all animal life on land on the planet, and we are also destroying their equivilent ints in the oceans and life is all ready dying off there too.

    It has to be remembered that the pesticides that are destroying insect life on land and in water, and in the air, are a product of the oil and gas industry.

    Extinction of insects is irreversible, it has taken nature hundreds of millions of years to establish the present ecology, without that we are left with nothing to pollinate crops and everything will die off, including us.

    • Its Limerick Day today!

      Have a go yourself and try these for size.

      There once was a meme obsessed fracker
      Who’s mind had got slacker and slacker
      With red dIesel he loaded
      His hybrid exploded
      And blew off his catalyst cracker (clean version)

      Whilst posting on Drill or Drop
      The fracker said he would not stop
      He stole from the children
      For a cool 20 billion
      So they force fed him cake
      But not vegan chocolate bake
      And the taste made him heave the lot up

      The fracker liked headers and footers
      Though the first and last word was a butchers
      He posted ’till he burst
      His words were the worst
      That he ruined the children’s entire futures

      Paunch pranced and pirouetted his stuff
      The audience though had enough
      The children were clever
      Not impressed with his endeavour
      They shouted “Get Off!” and were quite tough!

      Compulsive and obsessive as ever
      The Martian still thought he was clever
      But we know the truth
      AS do Paul and Ruth
      That the best post from Martian
      Is….never….

  4. Meanwhile back in the real world this is a compilation of Greta Thunberg speeches on the real problems that failure to deal with the future represents. The music is from the movie The Fountain by Clint Mansell.

  5. An interesting read, the overall conclusion of which I agree with but not some of the detail that gets there.

    1. Offshore Decommissioning

    Field Maturity

    Both onshore and offshore oil and gas fields decommissioned are mature.

    Interest in offshore decommissioning

    Offshore decommissioning had attracted the most attention prior to recent concerns onshore.
    In 1995 Greenpeace mounted a high profile intervention against the planned decommissioning of the Brent Spar ( a moored tanker loading system ). In some ways an action similar to today’s protests outside oil and gas sites onshore …. but offshore.

    https://en.m.wikipedia.org/wiki/Brent_Spar

    Eventually Greenpeace apologised to Shell for over estimating the oil in the Spar, and since then decommissioning has taken place without much public interest, as noted.

    https://www.independent.co.uk/news/greenpeaces-brent-spar-apology-1599647.html

    But there has not been a lot of decommissioning offshore in relation to the number of platforms and wells out there. Most are still out there chugging away, including West Sole Alpha ( 1966/7 ) although the pace of decommissioning is quickening.

    Onshore decommissioning has, by contrast attracted almost no attention prior to the attention created by fracking and Weald oil.

    Hence I doubt that offshore decommissioning owes its low profile due to the 1998 Petroleum Act, more that onshore Decommissioning ( not forgetting clean up which will be mentioned later ) has been highlighted due to concerns over fracking and oil exploration in the Weald ( which has resulted in overspill to other oil and gas fields ).

    2. Petroleum Act Requirements

    The act addresses the decommissioning of offshore installations, and connected wells and pipelines.

    It does not cover exploratory drilling, which is carried out by a jack up or floating rig. Indeed well testing is carried out by these rigs. These activities can be compared to Cuadrilla activities in the Fylde and the present oil exploration in the Weald in the Kimmeridge.

    In addition, most onshore sites to date have no installation or pipeline to decommission, many have a well, an oil tank and a vent. Where they are connected, ( such as Wytch Farm, Third Energy ..Vale Pickering ) the installation, being the place the product is gathered and processed is covered by the COMAH regulations so the analogy is a bit of a stretch.

    Indeed ( for offshore ), many Southern North Sea Installations are wellhead platforms or sub sea tie backs, feeding an onshore ‘installation’, such as Bacton or Dimlington/ Easington, which is covered by onshore Regulations.

    I think Markwells Wood is a good example of where the offshore Petroleum Act would not be relevant. One well, tested, no installation or pipelines and low risk.

    3. Funds for a decommissioning programme

    I agree that this should form part of any request to drill and or produce hydrocarbons in the UK, be it offshore or onshore. The expected cost of decommissioning an exploratory well are understood and a bond or other security is appropriate. This would fit into the Limited Liability Framework companies operate under.

    The amount required would no doubt be argued over by the industry on one hand, and those who consider every well to be a source of pollution in perpetuity and in need of monitoring as such ( something that does not fit with the LTD company framework … more later on this ).

    4. Fish and Marine Life Protected

    I realise that this is a tongue in cheek comment.

    But to note. Offshore Decommissioning requires a decomissioning Safety Case. I attach genesis guidance as the pictures are better, but just to say that humans as well as fish are considered in the decommissioning activity.

    http://www.genesisoilandgas.com/assets/portal/files/Guidance_for_UK_Safety_Case_Management_.pdf

    Onshore decommissioning is dealt with under different regulations.

    For wells prior to 2013

    https://www.gov.uk/government/publications/decommissioning-onshore-oil-and-gas-wells-drilled-before-1-october-2013/decommissioning-onshore-oil-and-gas-wells-drilled-before-1-october-2013

    Post 2013 the EA is more involved, but they do not require a bond or other security, and their permit is mainly operations focussed.

    5. The Polluter Pays

    The transcript linked is interesting. Both in that the questions asked are specific to fracking ( no mention of untracked issues although relevant see Q87 on ) and that the committee of MPs et al seem somewhat at Sea with the Issue.

    The question asked is …. what happens if the operator goes bust leaving liabilities, …..linked to the long term liabilities of fracking.

    The question, and subsequent questions do not ask about the costs of decommissioning a conventional or un fracked well or asset ( ie the processing facility ), or the cost of a clean up.

    Hence this section is not relevant to the overall argument that a bond would be useful in terms of decommissioning costs ( which includes site clean up ). This because Lee R is talking about the long term impacts of fracking, a point the other attendees are somewhat at sea with as those impacts are not laid out for them to consider. And impacts that would be both real and imagined.

    The attendees also seem at sea with the requirements of existing legislation in terms of landowner permission to extract oil and gas, and where the actual or imagined damage from fracking may turn up ( ie not-on the land owned by occupied by the wells and or the processing facilities.

    Indeed the transcript is riveting on a number of issues, including tax relief for decommissioning and its projected cost ( the Treasury, having spent all the tax income begrudge the cost of decommissioning and argue about that projected cost with no reference to Environmental requirements in place ( no rig to reef ) plus see Brent Spar Issue ).

    6. Taxpayer

    The landowners liability is not straightforward as the department were at sea with the question, and it did not directly relate to decomissioning issues.

    The question is not to the EA, but to the government.

    Oil and gas is owned by the government, who encourage its extraction by issuing licences to do just that.

    This activity shares the risk and rewards with the company who take up the offer and the gov, and hence the tax payer.

    If the company goes bust, and the various risk reduction measures fail ( be it no bond, poor insurance, or an event which overwhelms a small company ) the state, as the guy selling the risk, is on the hook for the cost.

    A point supported by the fixtures and fittings of a well becoming the property of the government ( especially if there is a chance more oil or gas could be got ).

    Like North Sea oil and gas, happy to rake on the tax in the good times, flailing hands and sore losers in bad times.

    This is not the case for potash, for example. An activity which, like oil and gas in the US, could make millionaires out of landowners, who can then ponder on their potential liabilities.

    So .. overall

    The taxpayer is on the hook for assets owned and promoted by the government ( and hence the tax payer ), as Mr Lee R was asking about.

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