This was meant to be the year of fracking’s big push in the UK. But the early months of 2018 have seen the industry beset by delays and controversy yet again.
The latest obstacle came in the form of the UK government’s reluctance to give the go ahead to fracking at a well near Kirby Misperton in North Yorkshire without financial checks.
Business secretary Greg Clark decided to have Third Energy’s finances assessed before choosing whether or not to approve drilling at the site. The firm’s filing of its accounts was four months overdue before they were finally published.
The project was due to be at the vanguard of a fresh wave of fracking in the UK, which would have seen wells fracked for the first time since 2011.
So what’s the story behind Third Energy’s troubles, and what does it mean for the UK’s burgeoning fracking industry?
Third Energy has removed some equipment from its Kirby Misperton site, perhaps signaling it does not expect the green light imminently.
A spokesperson for the Department of Business, Energy and Industrial Strategy (BEIS) told DeSmog UK “There is no set deadline [for approval], it’s an ongoing process… however long it takes to be done properly”. Third Energy stated it expected the process to take “some time”.
Clark has referred Third Energy’s finances to the Infrastructure and Projects Authority (IPA), a treasury arm, “to assess the financial resilience of the applicant, including its ability to fund decommissioning costs”. This extra hoop to getting permission to frack also affects any other projects in the UK, according to Clark.
This means that the fracking industry is once again left in limbo, without a schedule of what to expect, when it thought it would be able to advance — and its reputation again brought under question.
Since 2012, the government has been pushing fracking as a source of home-grown energy.
But all is not looking rosy for the industry that can’t quite seem to make it off the ground: An internal, government report massively scaled back expectations of fracking in the UK; energy demand is down while renewables prices are at record lows; and Scotland has banned fracking, after mass public objection to the technique.
Third Energy had hoped that it could have tested the potential of the well to find out whether it was commercially viable by mid-February. Commercial development and production could take up to three years and depend on further fracking wells, the firm’s director Alan Linn told the Guardian.
Third Energy has already experienced delays at its site near Kirby Misperton. The company had hoped to start tests of hydraulic fracking at the site last year, and stated in early November it was ready to do so. But then in the same month, the government moved to close a loophole in the law - anti-fracking protesters claimed they influenced the decision - with the upshot that Third Energy’s well in North Yorkshire was subject to planning consent approval by BEIS secretary of state, Greg Clark.
A spokesperson for Third Energy said: “After almost four years of planning and preparation, we are delighted that the Secretary of State is satisfied that Third Energy has met all of the thirteen technical requirements set out in section 4A of the Petroleum Act 1998.
“We look forward to providing the requested information to the Infrastructure and Projects Authority in order to achieving hydraulic fracturing consent from the Secretary of State for our existing KM8 well.”
The firm has said it hoped operations near Kirby Misperton could cause a “sea change in how the industry is perceived” around fracking pollution and safety, according to the Guardian. But these now appear to be on hold.
Conflict of Interest?
The firm is also under pressure due to allegations of a conflict of interest regarding one of the company’s directors relationship with a Treasury body — which both the government and Third Energy deny.
In September last year, Jitesh Gadhia was appointed a senior independent director of Third Energy. He is also the non-executive director of UK Government Investments, a treasury body which looks at government support for ailing businesses. Ghadia is an investment banker, Tory party donor and has sat in the House of Lords since 2016.
A Friends of the Earth spokesperson told DeSmog UK: “The fact that a Conservative party donor and peer who has executive status within a Treasury body and therefore potential position of influence within both Treasury and Government is a director of a company that is reliant on a favourable report from another Treasury body is…an area of concern.
“The decision to go ahead with KM8 [the well near Kirby Misperton] clearly now rests upon that favourable report from the IPA. This is why the relationship matters.”
The government stated the IPA and UK Government Investments are separate, and there was no basis for suggestions of conflict of interest. Third Energy told the Guardian that Gadhia had registered all of his interests on the Lord’s register, and “There is complete transparency and no question of any conflicts of interest.”
Gadhia has donated over £200,000 to the Conservative party between 2009-2015, according to Electoral Commission data. He was made a peer by David Cameron in 2016. His Government profile states he “has over 20 years’ investment banking experience, having held senior positions at Blackstone, Barclays Capital, ABN AMRO and Baring Brothers.”
Third Energy, which is largely backed by Barclays, said last May that it intended to withdraw its support from Third Energy. The UK subsidiary of Third Energy is controlled by a parent company ‘Third Energy Holdings’ registered in the Cayman Islands, a renowned tax haven that has been “grey-listed” by the EU.
“Third Energy Holdings and all subsidiary companies are compliant with all UK tax policies and we pay our taxes here in the UK,” a spokesperson for Third Energy told DeSmog UK, “As our trade association has already pointed out several weeks ago, people need to be aware of the facts – all UK profits from oil and gas companies onshore are ring-fenced as part of the tax rules meaning that UK profits are subject to UK tax.
“The Corporation Tax for UK onshore oil and gas companies is currently set at 30%, significantly in excess of normal Corporation Tax. In addition, the industry has committed to a substantial payment to local communities based on the revenue it generates. The Government will also ensure that all business rates will go directly to local councils.”
Gadhia has also previously defended offshore investments in the wake of the Paradise Papers scandal. In the Lords in 2017, he said:
“My Lords, I declare my interests as an investor in a wide range of assets, including offshore investments. Will my noble friend agree that millions of UK savers and pensions, let alone Her Majesty, benefit directly or indirectly from investments held offshore, and to suggest that they are avoiding tax is simply fake and false news?
“Those who take the time to properly understand offshore investment vehicles will realise that their underlying purpose is to provide an efficient and predictable umbrella structure to attract the widest possible range of investors from around the world. They are in fact set up to minimise the amount of tax paid within the offshore entity and consequently to maximise the returns flowing back to investors, allowing them to pay tax directly in their own countries.”
Third Energy UK Gas Limited (the Third Energy subsidiary that owns Yorkshire fracking licences) revealed a loss of £3.405m in its annual accounts filed in February.
The documents also stated that firm owed £48.16m to parent company Third Energy Holdings, which is repayable on demand.
The directors of Third Energy Holdings said they would not pursue repayment within 12 months of the accounts, leading the UK offshoot to state “the Company can continue as a going concern, and has the necessary funding available to ensure that it continues to trade on the going concern basis, for the reasonably foreseeable future.”
Photo: Kirby Misperton Protection Camp