An official order could block plans by a former fracking company to use gas wells in North Yorkshire to test alternative technologies.
Third Energy, which sought to frack at Kirby Misperton in Ryedale, has confirmed that the industry regulator, the Oil & Gas Authority, has required it to plug and abandon all its wells in the region.
But the company has said it is challenging the order. It wants to extend the life of the wells by using them to generate geothermal energy and to pilot new decommissioning techniques.
The Oil & Gas Authority (OGA) twice refused DrillOrDrop’s freedom of information requests for details about any orders issued to Third Energy. But the managing director of Third Energy, Russell Hoare, told us:
“We received a letter in January 2019 which provided notice to abandon the wells by January 2021.”
In an interview with DrillOrDrop, he said:
“If we can find a way to produce geothermal heat from our wells to provide to local business or residents, then it would be irresponsible to abandon the wells and rob Ryedale of that potential.
“Shutting down wells using old technology and before the wells are at the end of their useful economic life does not make sense.”
This is the latest twist in the complex recent developments at Third Energy.
The company has produced gas in Ryedale for more than 25 years. In 2016, it looked as if it would beat Cuadrilla to the first high volume frack for five years.
But Third Energy failed to get final fracking consent from the government and in 2019 the company, mainly owned by Barclays, was sold. Since December 2019, none of the 12 production wells in Ryedale has supplied gas and one site has had no meaningful production since 2005.
Last month, we reported Third Energy’s plans to generate geothermal energy and pilot new techniques for well plugging and abandonment. It told us it had no plans to extract hydrocarbons in Ryedale and proposes to update its power station at Knapton to run on mains, rather than local, gas.
“No right to issue notice”
Mr Hoare said there were two reasons why Third Energy was questioning the OGA order to plug and abandon:
“Firstly, the notice was received at a time when we were still producing gas from several of our wells and our understanding of our licenses is that the OGA have no right to issue such a notice in such circumstances.
“Secondly, we feel strongly that we have an opportunity to test new technologies in a way that would benefit both Third Energy and the industry as a whole.”
He said the company’s disagreement with the OGA was about the end of a well’s economic life:
“The OGA is the hydrocarbon regulator and sees the end of a well’s life as when the hydrocarbons run out, whereas we are an energy company and if we can see a viable way of generating more energy from those wells (e.g. via geothermal), we will extend the well’s life to enable this.
“Even if we ignore geothermal possibilities, there is also the matter of carbon capture and storage which again could provide a way that wells can prove useful within the new sustainable energy system. If we close these wells prematurely, we will have lost that potential.”
The OGA declined to respond to Mr Hoare’s comments. A spokesperson said:
“We cannot comment on a live commercial matter.”
As well as the geothermal plans, Third Energy wants to pilot new plugging and abandonment techniques, which it thinks could later be used in the North Sea.
In giving its notice, Mr Hoare accused the OGA of failing to follow its own remit of promoting collaboration among operators to develop new technologies.
“That is exactly what we are doing.
“We expect the OGA to understand this and extend the deadline.”
Mr Hoare said wells could be plugged with a small amount of alloy material, rather than the several thousand cubic feet of cement traditionally used.
“Many of the new technologies can be deployed from a small truck, whereas traditional cement-based abandonment requires a large rig, which takes time to transport and construct.
“Closing the wells now with old technologies would go against the OGA’s own mandate and would be the wrong decision for the community.”
The plugging and abandonment pilots could work alongside the geothermal project, he said. A section of a Ryedale well could be plugged while another section was used for geothermal energy.
Third Energy has described current plugging and abandonment practices as “cost prohibitive”. This had resulted in “delays to abandonment (as companies attempt to avoid the high cost), and poor abandonment practices that may be harmful to the environment”, it said.
Asked by DrillOrDrop whether Third Energy could afford to plug and abandon all the wells, Mr Hoare said:
“Yes we do, but … we would rather spend capital on developing renewable energy from our wells than spend the capital on filling them with cement and walking away.”
Third Energy was sold last year to York Energy, an affiliate of a US company. As part of the deal, closed on 9 July 2019, Barclays put £9 million into the company as working capital. The new directors were restricted from taking this money out of the company for two years.
Some in Ryedale have cautiously welcomed Third Energy’s change of direction.
But there is also some scepticism. This is largely because of the company’s earlier fracking scheme, the previously-stated intention of the new owners to produce gas in Ryedale and a planning application, approved in July 2020, to extend the life of the well sites to 2035.
David Davis, of Frack Free Ryedale (FFR), which opposed Third Energy’s plans to frack at Kirby Misperton, said:
“FFR would welcome a green solution that could reuse some of the existing infrastructure and sites. At this time there are no plans that have been submitted to the Planning Authority for alternative development although FFR understand several different options are mooted. One of the potential options would be to generate electricity at Knapton Generating Station using mains gas. FFR would not be able to support that proposal.’
“FFR and our local communities believe the growth of renewables in our energy mix is at a tipping point and feel in these unprecedented times that the oil and gas industry should not shirk their responsibility to come up with real green solutions. If the operators are unable to come up with any such solutions, they should honour the planning conditions, plug and abandon the wells and restore the sites.”
Eddie Thornton, who brought a legal challenge against the OGA over the sale of Third Energy, said:
“I hope that the Oil & Gas Authority will act on its concerns and compel Third Energy to decommission the disused gas wells across Ryedale by January 2021.
“As noted in the High Court judgment published last week, the OGA acknowledged that there was a risk of asset stripping by the new US directors of Third Energy after two years, when restrictions included in the sale agreement end. At that point, the agreement no longer requires the use of Barclay’s £9 million cash injection for capital costs and there will be little to stop its directors from diverting the millions elsewhere, leaving the public with a huge potential clean-up bill.
“By July 2021 (and possibly as soon as April) these restrictions will cease to have effect. Suddenly talking about changing their operations to geothermal production seems like a convenient way to delay clearing up their aging infrastructure and run down the clock on the terms of the sale agreement.”
Change of mind
The ruling in Mr Thornton’s legal challenge revealed that the new owners of Third Energy told the OGA they planned to produce gas from the Ryedale wells.
Asked by DrillOrDrop what made the company change its mind, Mr Hoare (left) said gas had been produced for five months after the sale.
But he said:
“I think what changed things was that we looked at the cost of dewatering the wells. This is a process where you try and pump water out and increase the gas flow. And the costs of that were just prohibitive. It didn’t make any economic sense to do that. And we wouldn’t have made any profit on that.
“Ironically, it is that fact, that made us think a bit more about geothermal – the fact that the wells are producing water made us think that maybe there is a way that we can use that instead of the gas.
“The incoming shareholders knew there was gas under the ground and thought they could access it more economically than they could. But once we looked at it, we realised that it was too expensive really.”
Mr Hoare said it was unlikely that the company would be producing “large amounts” of gas from the current Ryedale wells. The gas processing plant was currently mothballed, he said, and “does not feature” in plans to update the Knapton power station.
But he said:
“That does not necessarily mean that it is the end of gas production in Ryedale. Whilst not in our near-term planning, there is still plenty of gas under the ground here.”
He also said gas could be produced along with the geothermal process.
“Some of our wells still have some gas in and it might be that, by bringing liquids to the surface, we might actually produce that gas, almost as a by-product.
“But I’m much more interested in the geothermal opportunities because that’s much longer-term for us. The gas that’s left in our wells – there’s probably no enough gas in there to be viable beyond a couple of years.
“Depending on how much gas was coming up, if any, we could use it to boost the geothermal heat at the surface, and that would help any end user, whether it is in agriculture or community heating.”
Since the sale of Third Energy, the government introduced a moratorium on fracking in England, which is still in force.
Asked by DrillOrDrop whether Third Energy was simply biding time on the Ryedale well sites until the moratorium was lifted, Mr Hoare said:
“The only way I can respond to scepticism is to be transparent about our plans and then execute them. The proof will be in the result. I only ask that we are judged by our behaviour.”
He gave the same response to our question about why the company would seek to move away from gas when thousands of cubic feet remained underground.
“Third Energy is now under new ownership and management and so its history is exactly that – history. We should be judged by our current and future actions rather than what others did in the past.”
He said the company was sharing its plans with the local community and hoped to hold town hall-style meetings in 2021.
Vision and detail
Asked about his vision for Third Energy, Mr Hoare said:
“I want the assets for Third to be used in a way that is consistent with the energy transition that the entire UK will have to go through in the next 30 years, is consistent with the government’s net zero 2050 plan and I want to avoid those assets being lost to the energy system before they can add 100% of their potential value.”
So far, there is little detail on the Ryedale plans. Mr Hoare was unable to say when the geothermal project might begin, which sites were the most promising and which would be the first. He said:
“We have only just received some initial feasibility findings and the next step will be to translate that into specific projects that can add value.
“Only when we have done that can we commit to any timelines for those projects. It is worth noting, however, that these are not new technologies – geothermal systems are in use around the world but have not really been developed fully in the UK. We need to do some further work to see whether geothermal technologies can help our wells to continue to contribute to the local energy system.”
He said the feasibility of each site and the type of geothermal system would be determined in the next stage of the project.
The Sherwood sandstone appeared to be the most favourable formation if Third Energy looked to produce water, Mr Hoare said. But he said it was also possible to heat water simply by circulating fluids within a well.
Third Energy’s pipeline, which carried gas from the sites to Knapton, was unlikely to be used to transport heated water from the geothermal projects, he said. The company would have to identify demands for heat close to the wells or look for a new distribution system.
In its statement to DrillOrDrop on Third Energy’s challenge to the plugging and abandonment order, the OGA added:
“The OGA regulates the licensing of exploration and development of England’s onshore oil and gas resources. We issue well consents, development programme approvals, completion of work programme approvals and production consents.
“Two documents, The OGA Guidance on the Onshore Regulatory Regime and The OGA Onshore Decision-Making Framework, set out how the OGA normally considers matters, and lays out the methods the OGA has been using to take decisions on onshore matters.”