Regulation

Guest post: notice to quit casts new doubt on onshore regulation

In this guest post, campaigner and researcher Ben Dean investigates official orders to decommission gas wells in North Yorkshire.

Third Energy’s site in North Yorkshire, 10 April 2019. Photo: Hazel Winter

In four weeks, Third Energy is required to plug and abandon six gas wells in the Ryedale district of North Yorkshire.

Another six wells must be decommissioned by the end of April this year.

But it looks unlikely that the work will be carried out on schedule, if at all.

The orders, from the Oil & Gas Authority (OGA), are being challenged by Third Energy. And I can’t find any legislation that the OGA could use to enforce them.

The development is part of a complex story involving the sale of Third Energy and the extension of planning permission for the company’s Ryedale fields. It raises for me more questions about the regulation of the UK onshore industry.

Confirming the orders

The OGA’s orders first came to public attention in October 2020 in a DrillOrDrop interview with Third Energy’s managing director, Russell Hoare.

Mr Hoare revealed that Third Energy had received a letter, from the OGA, in January 2019, which included a notice to abandon the Ryedale wells by 29 January 2021. At the time of the interview, the OGA twice refused to publish the notice.

But last month, the OGA did release it, in response to my freedom of information request. The OGA also published an additional order for plugging and abandoning six Ryedale wells that had been producing up to December 2019.

DrillOrDrop asked the OGA whether the orders remained current. The OGA is treating this question as a freedom of information request and a response is not required by law until late-January 2021.

But Third Energy’s Russell Hoare confirmed to DrillOrDrop that both orders were current. He also said the company was continuing to challenge the orders.

The orders refer to Clause 20(6) of The Petroleum Licensing (Exploration and Licensing) (Landward Areas) Regulations 2014. This clause states:

“The Minister may at any time give the Licensee a notice requiring a well drilled pursuant to this license to be plugged and abandoned in accordance with paragraph (5) within the period specified in the notice (but this paragraph is subject to paragraph 8).”

The second order, dealing with wells that had been producing, relied on paragraph 20(8):

“A notice under paragraph (6) may be only given in relation to a well from which the Licensee has not extracted any petroleum within the period of one month ending with the day on which notice is given.”

Selling Third Energy

At the time the 2019 order was issued, Barclays Bank, the then owner of Third Energy, was trying to sell the company.

You would think that an order from the regulator to plug and abandon all Third Energy gas wells would make the business unsellable.

But in July 2019, Barclays miraculously found a buyer, the US exploration company, Alpha Energy.

Arrangements for the sale were revealed in a High Court challenge in July 2020. The case failed, but during the hearing it emerged that the deal included sweeteners from Barclays. The bank wrote off Third Energy’s debt and provided £9m to Alpha Energy. This must be used as working capital for the first two years, but after July 2021 there were no restrictions on its use.

The sale went through after the OGA confirmed it would not block the deal.

So, it appears that Alpha Energy acquired Third Energy in the full knowledge that the OGA had ordered plugging and abandonment of all the wells.

The implications of the order may possibly go further.

A 2013 addendum to the field development plan for the Ryedale fields suggests that the closure of the wells could also require the decommissioning of other facilities, including the Knapton gas-fired power station, which takes gas only from the Ryedale sites. The pipeline network that connects the well sites to the power station could also have to be decommissioned.

The field development plan says:

“At the end of field life when gas can no longer be produced economically from the reservoirs Third Energy undertakes to properly abandon all of the wells drilled in the field, to remove all facilities and to restore all surface sites as prescribed by all applicable and approved planning consents.”

So for £9m, Barclays walked away from liability for many millions more in decommissioning. The OGA’s decision to impose the plugging and abandonment order and then back the sale gave responsibility to a newly-incorporated subsidiary of Alpha Energy, capitalised at the time at just £10, for the decommissioning liability of, say, £50 million.

Extending planning permission

The January 2019 order could have affected the extension of planning permissions last year for Third Energy’s Ryedale sites.

In July 2020, North Yorkshire County Council (NYCC) agreed to prolong permissions until 2035 for all the sites covered by the order.

There were no public details of the 2019 order in the planning application and no evidence that the planning committee or NYCC knew about it.

In my FOI request, I asked the OGA for any correspondence it had with NYCC and the Environment Agency (EA) about the order to plug and abandon wells by January 2021.

The OGA’s response may be surprising:

“The OGA does not hold any communications with North Yorkshire County Council or the Environment Agency directly relating to the order to plug and abandon wells.”

Would councillors on the NYCC planning committee have voted to extend the planning permissions if they had known about the OGA’s January 2019 order to plug and abandon the wells?

What happens next?

I am not aware of any agreement between the OGA and Third Energy to extend the timescales to plug and abandon the 12 Ryedale wells.

I have researched how the OGA could enforce the orders. While I may have missed the relevant legislation or regulation, there do not appear to be sanctions that the OGA could take against the onshore hydrocarbon industry in this case. The procedures seem to apply only to the offshore industry.

Ironically, the OGA may have to rely on the decision in my High Court judicial review case, Dean-v-SofS 2016, when Mr Justice Holgate ruled that petroleum licenses are common law contracts. Using that route, the OGA may have to sue Third Energy in the High Court.

Third Energy is also uncertain about what happens next. It told DrillOrDrop:

“It is not clear to us what the implication of failing to meet the deadline is and so until we know that, we do not know what process we would have to pursue. Until now we have simply set out our reasons for not plugging the wells.”

New plans at Third Energy

Most of Third Energy’s staff have left since the sale and overheads have been significantly reduced. Alpha Energy’s original reasoning for taking on the company, to develop its conventional gas resources, also seems to have changed.

DrillOrDrop has previously reported that Third Energy wanted to avoid plugging and abandoning the Ryedale because it planned to pilot new plug and abandonment technologies. It said it had “active projects” with the Oil & Gas Technology Centre (OGTC). The first use of new technology was planned for March 2021, it said.

Russell Hoare added:

“We are also investigating geothermal repurposing and have been working with Ryedale District Council on grant funding some feasibility studies for this.

“We believe the deadlines given by the OGA to be short-sighted and ignorant of their own stated carbon-abatement strategy.”

Additional reporting by Ruth Hayhurst

  • DrillOrDrop always welcomes guest posts. If you have an idea you’d like to submit, please get in touch.

5 replies »

  1. So, since the field was first planned there may have been new uses for the wells that have come to the fore, that need investigating before the old plans are completed.

    Seems quite reasonable.

    Waste not, want not.

  2. This strikes me as a quite bizarre situation. Not least, the OGA’s order to plug and abandon the wells when govt, regulators and councils have been bending over backwards to renew or extend various permissions for years. The OGA clearly know about TEs plans ‘to pilot new plug and abandonment technologies’ and for possible geothermal exploitation, both utilising the existing wells. Therefore why insist on P&A of these wells when there could be extremely beneficial outcomes? The OGA will also know that P&A using the usual cement plug is costly and destined to fail in the fullness of time, resulting in the release of Methane, well known to be a hugely potent greenhouse gas.

  3. I agree, Mike.

    Perhaps there are more discussions behind the scenes than we are aware of. It would seem sensible.

    And, not always a good thing for a site to be re-instated to what it was, as then the site may become available for other uses that may not be too pleasing to locals. Plonk a pig farm on top? I do recall such issues being very real concerns regarding the re-instatement of missile sites in Lincolnshire, and even Greenham Common, post the ladies, was a toss up between re-instatement and housing.

  4. Not sure what the issue is here? The risk of the existing boreholes (as yet something existential) or a critique of the OGA not following their own rules about paperwork?

    As the wells stand, they are minimal to zero risk.

    Also, the OGA is tendering for a risk model for onshore wells, these wells (unabandoned) would be a good test of that model.

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