Fracking companies must undergo financial health checks if they want to win a green light for their operations, the business secretary has said, as the industry faces another barrier to exploration in the UK.
The decision comes after a Barclays-backed company hoping to be the first to frack in the UK for seven years suffered a blow when business secretary Greg Clark said he was withholding consent because of the state of its accounts.
Third Energy is ready to start extracting gas at Kirby Misperton in North Yorkshire and is awaiting permission from Clark.
But on Thursday, the business secretary said no decision will be made until Third Energy submitted overdue accounts and the Treasury had assessed its financial resilience, including the firm’s ability to clean up the site afterwards. The operating company, Third Energy UK Gas Ltd, has overdue accounts for the period ending 31 December 2016. They were due last September.
Clark said that the contents of the accounts would inform his decision on whether to give the company the go-ahead, as he conceded the firm had passed 13 other technical tests. Fracking involves pumping a mixture water, chemicals and sand underground at high pressure to fracture shale rock and release trapped gas – a technique that critics say could poison water supplies and cause earth tremors.
Clark added that new financial checks will now be applied to other companies seeking a consent, such as Cuadrilla and Ineos, adding an extra hoop for frackers to jump through.
Clark said: “The government considers that the financial resilience of a company wishing to hydraulically fracture is a relevant consideration. As a matter of policy, we will therefore look at the financial resilience of all companies wishing to carry out hydraulic fracturing operations alongside their application for hydraulic fracturing consent.”
Third Energy said: “Our annual accounts are being finalised and we will now be working with the Infrastructure and Projects Authority and the Oil and Gas Authority towards achieving hydraulic fracturing consent from the secretary of state.”
Fracking companies have already been delayed by new regulations imposed by government in recent years, in the wake of a moratorium. It is not clear how serious an impediment new financial tests will be.
One shale industry source said: “Until we know what the process is and what they [government] need, it’s hard to know the impact.”
Shale gas extraction: How the process works
Vast reserves of natural gas can be found trapped in densely packed rock such as shale. Here is how it is reached
Sand is used to
keep fissues open
Steel casing surrounded
with special cement
2. Bore is lined with steel and cement and small holes made in the casing and into the shale
3. High-pressure water, sand and various chemicals are pumped into
the bore. The holes
in the horizontal section allow water to enter and fracture the shale
1. A vertical hole is drilled into the shale rock. The drill can run horizontally once it enters the shale layer
4. Gas in the rock
is forced into the
bore and flows
to the surface
Alan Linn, director at Third Energy, recently told the Guardian: “We are financed to complete our existing round of work. Then we will go out and do our next round of financing.”
Linn was officially announced as the company’s director this week. He replaced John Dewar, who had worked as director at Third Energy since 2011 and has previously called the Kirby Misperton project his “crowning glory”.
The company’s acting chief executive, Keith Cochrane, was also one of the directors of construction firm Carillion, which went into liquidation earlier this month.
Fracking opponents said the intervention by Clark was a blow to the industry.
Caroline Lucas, Green party co-leader and a long-term critic who was arrested at anti-fracking protests in 2013, said: “Fracking is doomed, despite the industry’s desperation to start drilling.
“This latest news reveals another reason to distrust the fracking firms – they can’t even get their financial house in order. It’s absolutely right that Third Energy are being forced to sort themselves out.”
Barclays invested in the company through a private equity division, which was later spun out, but retains a shareholding. The bank said last year it plans to sell its stake.