The would-be fracking firm, Third Energy, has been acquired by a renewables company, which plans to use old gas wells to generate geothermal energy.
The deal with Wolfland Group, completed in the past fortnight, ends Third Energy’s interest in fossil fuels in North Yorkshire, after more than 25 years.
In an extended interview with DrillOrDrop, the new owners said Third Energy was now a green energy company. They plan to install 28MW of battery storage later this year on the site of a former gas fired power station.
They are also due to apply for planning permission for a 50MW solar farm nearby and expect a geothermal pilot project in a former well will be ready by the end of this year.
In the longer term, Third Energy is also looking at the feasibility of producing green hydrogen or storing carbon.
Mike O’Shea, chief executive of the Wolfland group, said:
“If we get this right and we drive the green agenda, taking a dirty fossil fuel fracking company and turning into a green energy beacon, I just think that’s wonderful, so we jumped into it straightaway.”
One of the directors, Steve Mason, a leading figure in the anti-fracking campaign, said:
“The government is talking up green energy and green jobs. But this is it in a package. This is the real-life example of what the government is talking up.
“This is about turning stranded fossil fuel assets into green energy assets.”
Third Energy’s managers and new owners also told DrillOrDrop about:
- The impact of the fracking moratorium on the company’s move to renewables
- Difficulties for oil and gas companies to raise green investment
- Licensing hurdles to harnessing heat from spent wells
- Opportunities for turning decommissioning liabilities into green energy assets
The Wolfland deal is the latest in a series of big changes at Third Energy during a challenging time for the onshore industry.
Previously owned by Barclays, Third Energy produced gas from wells in Ryedale and piped it to the power station at Knapton.
In autumn 2017, a controversial shale gas project at Kirby Misperton looked as if it would be the first high volume frack in England for more than six years. But weeks before the start, the company failed to get government consent and the scheme never went ahead.
Within months of the deal, the government imposed a moratorium on fracking in England.
Under its American owners, Third Energy had already told local people it was focussing on conventional gas, rather than fracking. But managing director, Russell Hoare, who has stayed with the company, said:
“Even though fracking wasn’t part of the plan, the moratorium did change things in the industry. It suddenly became quite hard to get developments through.”
Across the country, there were reports of onshore applications being refused or delayed, he said.
The regulator, the Oil & Gas Authority (OGA), turned down Third Energy’s development plan. The proposals, for conventional gas development and dewatering of wells, had formed the basis of York’s plans for the company. Russell Hoare said:
“I think the OGA had hoped that the money left behind by Barclays would be entirely used on abandoning the wells rather than on further development.
“So, when York came to the OGA and said: ‘This is our development plan’, and they said ‘No, we don’t agree with it’, it left York with very few options, to be honest.”
Costs for operations were also about two-thirds higher than what York Energy would have expected to pay in Texas, said operations director, Shaun Zablocki, who has also stayed on at the company:
“We’d look at the development routes that oil and gas companies have traditionally gone down and we realised the economics just didn’t add up. It really pushed the fact that we needed to look at the wells as alternative assets and how we could transition them.”
In a further challenge, an agreement to share reserves with Cuadrilla across two licences was not approved by the OGA.
Russell Hoare said:
“I think at that point York realised that if they wanted to develop onshore oil and gas assets, the UK is not the place to be.”
By 2020, Third Energy’s managers had already decided they wanted to take the company in a different direction.
“I think, with all of that building up, York started to realise that Texas is different and an alternate strategy was needed here”, Russell Hoare said.
He met Steve Mason, of Wolfland, just before the first Covid-19 lockdown in March 2020. The two said there was an immediate meeting of minds.
By mid-May 2021, two Third Energy companies, including the one running the Knapton site, had transferred to Wolfland.
The remaining companies moved in the latest acquisition, including the gas licence-holder and the operator of the old gas wells. The remaining working capital from Barclays was transferred to the new owners and remains within Third Energy.
Green investment closed to fossil fuel company
York Energy had encouraged its Third Energy managers to pursue renewable possibilities for the business. But Russell Hoare said:
“We were finding doors were shut to us. It was very difficult for us to go out to green investors and ask them to fund projects when our shareholder is actively pursuing oil and gas development in the US and Ukraine.
“The green investors were very open and honest about it. They’d say: ‘We feel uncomfortable supporting an oil and gas business. We get what you’re trying to do is different but at the end of the day you’re still owned by an oil and gas company.’
“Now we can say: ‘You can see we have changed shareholder. We’ve got no interest in fossil fuels now. We’ve got a shareholder who has no interest in oil and gas. So, now we can move forward and talk with good intent’.
“We needed a renewable energy investor to own the company and that would open doors for us. And it already has, even before we closed the deal at the end of December, it made a big difference to the people we could talk to and also the way they talked to us.”
Mike O’Shea said:
“With COP26 in the near distance, this just seemed the perfect timing and the government seemed to be talking seriously about green energy.”
Storage and generation at Knapton
The Knapton site has the key advantage of a national grid electricity connection, dating from the operation of the generating station.
Third Energy already has planning permission for the battery storage facility and approval from Northern PowerGrid to sell electricity to the grid. The former gas-powered generating equipment at Knapton has gone, as has the gas processing facility.
Under the new storage plan, batteries will import 28MW of electricity from the grid at times of the day when demand and prices are low. They will then export it back at times of high demand at increased prices.
Another 50MW of electricity could be exported to the grid if the solar farm, less than 1km from Knapton, is approved. A planning application is expected soon.
Three years ago, campaigners said Third Energy was in “financial meltdown”.
But Russell Hoare said the battery and solar projects would ensure a financially-secure future.
Shaun Zablocki said:
“My wife jokes all the time ‘how have you been employed for 15 years by a company that’s made no money’. It’s the first time I’ve felt positive that it can be on a secure footing.”
The solar scheme also aims to improve biodiversity by up to 60 or 70%, Steve Mason said.
“Combining clean, renewable energy with nature is the way forward, and with the right plan, and working with the right people, we can support many forms of wildlife”.
Simply not ploughing a field can increase biodiversity. But Third Energy is looking at planting to attract pollinating insects and considering dew ponds, which should increase the effectiveness of the solar panels. The 100ha site is bigger than Third Energy needs, it said, to avoid installing panels on the best agricultural land or squeezing all biodiversity enhancements into a small area.
Repurposing stranded assets
In January 2019, the OGA instructed Third Energy to plug and abandon the old Ryedale gas wells within 24 months. The company challenged the order and the work was never carried out, although some innovative abandonment technology was tested at one of the wells in early 2021 with the support of the Net Zero Technology Centre.
But York Energy had become concerned about the cost of abandonment. Third Energy has 12 wells across eight sites. None of them had produced any gas since December 2019 and one site has had no meaningful production since 2005.
Russell Hoare said:
“When we said to York Energy: ‘We think we can find an investor who will come in and take that off you’, they were surprised. I said to them: ‘It is because the plan is to repurpose the wells’. So that abandonment liability doesn’t go away, but it gets pushed out for 25-30 years.
“When they realised that it was becoming very difficult to develop gas assets in the UK, and we were offering them an exit, that’s what pushed them.”
Third Energy has spent some of its own money on a feasibility study for geothermal energy at its well sites.
The temperature of water at the bottom of the 1km deep KM8 well, which had been earmarked for fracking, is about 90C. Shallower wells at the Pickering site, for example, have a temperature of about 65C.
Steve Mason said:
“This is typical of conventional wells in this part of England. I think it is criminal not to use that heat if it’s there and there is infrastructure in place.”
Further studies will use Third Energy sites to assess the potential of geothermal energy.
The company has raised some grant funding for feasibility work from the Department of Business, Energy and Industrial Strategy (BEIS), secured through Ryedale District Council in a process which started before the Wolfland deal. The company is also working with universities and the Environment Agency on repurposing onshore wells.
There are plans to establish a decommissioning fund as part of each well project. This aims to ensure there is a pot of money to abandon the well at the end of the project life. This is something company managers believe should be included in all oil and gas licences.
Third Energy is confident many of the wells will successfully produce geothermal energy. This could be used to heat local homes, greenhouses or tourist attractions. depending on the well’s location.
But there remains a problem with UK regulations and policy, run by the OGA for BEIS.
Onshore oil and gas licences allow companies to drill for hydrocarbons. When the licences expire, the OGA currently requires wells to be plugged and abandoned.
Russell Hoare said Third Energy doesn’t need its licences because it doesn’t want to drill or take any gas. It also doesn’t want to pay the annual licence fee. But it doesn’t want to plug and abandon the wells either.
“We want to keep the wells as assets and make use of them as a sustainable energy source for the next few decades.
“This is the argument I’ve been making to the OGA for the last year and a half. It is the wrong thing to do to abandon these wells. Before we’ve fully explored the geothermal potential, we shouldn’t be touching them.”
Steve Mason said:
“With energy, we are in a very different place than we were when the policy was established. At the time, the policy was meant to exploit reserves. We can continue to sit on licenses and further progress the innovative work already happening, but times have changed and I see this as an opportunity for real change to head to a net zero world. We have a solution to this problem.
“The geothermal development of the wells, for local heat networks or agriculture, is a fantastic opportunity to take capacity off the grid.
“I think there is more value to the UK right now in doing this than pumping tonnes and tonnes of cement down them. We have entered a world of high energy prices and renewable energy is the route out. There is a sustainable energy source under our feet and to me it is a total waste to not use it.”
The policy problem remains, however, and the UK government has published no plans for a regulator for geothermal energy.
But Mike O’Shea said:
“If we do this right and we can work closely with BEIS and the OGA, we can spearhead this because other people also want to do this. If we can convert these wells, which are currently liabilities, into assets and make them work, what a fantastic green story that is.
“This is us pressing the button on the start of a new office under BEIS. This could be the Office of Geothermal or the Office of Repurposing. To flip these liabilities into geothermal assets would be a fantastic driver and could put the UK at the forefront of this new global industry.”
In the longer term, Third Energy is also looking at producing green hydrogen at Knapton.
This could use either mains water or piped-in formation water, present in large quantities in the old wells. Both schemes would use electricity from the grid connection and, if successful, could supply hydrogen to local lorries or public sector refuse vehicles. The company has an existing pipeline network that it could use to transport water and the produced hydrogen.
There are also projects underway looking at using the wells to store carbon or hydrogen.
The company has retained staff from the fossil fuel business. It is helping them transition into green energy specialties, with a specific focus on helping local schools and businesses reach net zero.
It also has plans to revive a previous apprenticeship scheme and establish a renewable energy education centre at Knapton.
Third Energy said it aims to demonstrate how the UK can reach net zero. “One way or another these wells will be used for something else to help the country move forward into a net zero future.”, Steve Mason said.
He said there was work to do explaining the company changes to the local community, once divided by Third Energy’s fracking plans. But the one thing that doesn’t need to change is the company’s name, he said:
“The name perfectly describes the energy transition that needs to take place in the UK. The first energy was fossil fuels, the second was nuclear and the third energy is renewables. It’s a perfect brand for renewable energy.”