The Australian mining company that owns Cuadrilla is back in profit, partly thanks to benefits from the UK tax system.
Four months ago, Cuadrilla described itself as “largely non-operational” because the moratorium on fracking in England had stopped work at its Preston New Road shale gas site in Lancashire.
Despite this, Cuadrilla was able to claim research and development tax credits in the UK.
In interim accounts for the six months to December 2020, the company’s owner, AJ Lucas, said:
“During the reporting period Cuadrilla became entitled to and received research and development (“R&D”) tax credits from the UK tax authorities. These credits delivered a $A3.0 million income tax benefit in the current year, and $A4.2 million in cash receipts during the period.”
The accounts show that AJ Lucas moved to a net profit of $A9.941m in the period, compared with a $A10.262m loss for the same time a year earlier. The 2020 profit included $A2.977m in income tax benefit.
Net cash from operating activities increased to $A20.559M, up from $A6.506M in the previous year. The increase included $A4.258m from the UK research development incentive, the accounts said.
Research and development tax relief is paid by the UK government to companies that work on what are described as “innovative science and technology projects”. It can be claimed on unsuccessful projects.
To qualify, companies must aim to create “an advance in the overall field”, not just their own business. There must be scientific or technological uncertainty about whether the project is possible.
Small and medium-sized enterprises, like Cuadrilla, with fewer than 500 staff, can deduct an extra 130% of their qualifying costs from their yearly profit, as well as the normal deduction, to make a total 230% deduction. They can also claim a tax credit if the company is making a loss.
AJ Lucas explained the improvement in its finances:
“Earnings from our Australian operations increased. Combined with a lower level of losses from our UK operations, a tax benefit arising from UK R&D credits as well as lower financing charges, the Group reported a net profit for the six months to December 2020 of $9.9 million compared to a $10.3 million loss in the corresponding prior period.”
Fracking, moratorium and net zero
The accounts also said AJ Lucas was working to end the moratorium on fracking in England. This has been in force since November 2019, following two periods of earthquakes caused by Cuadrilla’s fracks at Preston New Road.
AJ Lucas said it was seeking “to allay the UK Government’s concerns related to sub-surface induced seismicity”.
The company said Cuadrilla had demonstrated that its exploration licences, mainly across northern England, contained “a very large, high quality natural gas resource in underground shale rock”. But, it said, development of the licences had been delayed by moratorium.
It also suggested that geothermal energy and carbon capture and storage, required to meet the UK’s net zero emissions target, could use depleted hydrocarbon reservoirs. But this had “the same potential to cause induced seismic activity as hydraulic fracturing or geothermal fluid injection operations”, it said.
AJ Lucas added:
“resolving and lifting the moratorium on hydraulic fracturing should happen in parallel with defining and appropriately mitigating and regulating the risks of induced seismicity associated with comparable CO2 injection and onshore geothermal operations”.
It called for collaboration between operators of proposed near shore CO2 storage sites and the regulator, the Oil & Gas Authority on upgrading design, operation and regulatory controls for induced seismicity.
Cuadrilla’s data from Preston New Road and independent studies on the site would “be an excellent and world leading foundation for successfully completing this work”, AJ Lucas said.
The company said it was also exploring other conventional and renewable opportunities in the UK. Work was continuing to assess the geothermal potential of Cuadrilla’s onshore UK well stock:
“The potential of dual purposing shale wells to become geothermal energy producers at the end of their gas production phase is an exciting opportunity and one that again can support the UK in achieving its Net Zero CO2 target by 2050.”