A fracking firm has to undertake “financial resilience” tests before the government will allow it to frack. This is part of a new set of government standards for the industry. Whether or not these tests will look into the company’s links to tax havens is another matter…
Fracking in Lancashire
Preston New Road is at the centre of a row over fracking. Cuadrilla has permission to explore the site for shale gas. But local people are against the company’s plans. And they have stepped up their protests since January 2017.
The government gave the go-ahead for Cuadrilla to test for fracking there – reportedly the first site of its kind in the UK – in 2016. It officially began work on 5 January 2017. Ever since, protesters have been at the site.
But now an answer to a parliamentary question has revealed that Cuadrilla will have to undergo a financial resilience assessment before it’s allowed to frack fully. The government said these checks were to make sure people “can have confidence in the company’s ability to meet its commitments”. A spokesperson for Cuadrilla told The Canary:
We are a proud Lancashire-based company and are delighted with the progress we’ve made recently in drilling the first horizontal well into UK shale. Ministerial consent for any hydraulic fracturing operation is part of the robust regulatory regime we work within, and we will of course follow any procedure and are confident we will fulfil any requirements necessary for the secretary of state.
Tax haven resilience?
But how far the government will look into Cuadrilla’s finances is unclear. Because as Greenpeace has revealed, both its parent companies [pdf, p37] are ultimately based in offshore tax haven, the Cayman Islands:
45% of Cuadrilla is held by Riverstone Holdings through a Cayman Islands-based investment fund, while another 45% is held by Australian company AJ Lucas, which is 50% owned and substantially bankrolled by Kerogen Capital, registered in the Caymans.
Cuadrilla: not the only one
The news comes after reports that another fracking firm, Third Energy, is also going to be subject to government financial resilience tests. As The Canary revealed, Third Energy lost millions of pounds in successive years. It owed £44m to its Cayman Islands-registered parent company and didn’t file its 2016 accounts until 2 February 2018. It’s been threatened [pdf] by the government with being dissolved.
After The Canary’s article, business secretary Greg Clark said on 25 January that Third Energy, and other fracking firms, could not begin fracking until the government had assessed their “financial resilience“. This process is currently ongoing.
A campaigner says…
But campaigners are critical about the news of Cuadrilla’s financial checks. John Hobson from Frack Free Lancashire told The Canary:
The shale gas fracking industry has invested far more than it has generated. The Financial Times tells us [paywall]: ‘For the past eight years, the US exploration and production industry has outspent its cash flows in drilling costs, requiring a constant inflow of debt and equity financing to keep going. But the industry has given shareholders very little in return’.
Against this background we have a company whose major investor, AJ Lucas, has lost 94% of its share value over the last 10 years, and whose other public backer, Centrica, appears eager to limit its oil and gas exploration participation by reducing its exposure to Cuadrilla’s operations. These facts alone should give the government cause to investigate Cuadrilla’s finances very closely.
Cuadrilla are not only having to finance operations which have already taken twice as long as first anticipated. They are also having to pay for belated remediation on wells that were decommissioned years ago. But ones for which they have not complied with agreed timescales. It is absolutely necessary that the government should scrutinise their finances and we will hold the government to account on that. Because in the event of an accident or default of any kind, it is Cuadrilla and not the local taxpayers who will pick up the tab. Ideally, the Government should have insisted on a bond from each operator for each well, but, in the absence of this, the scrutiny of the operators’ finances will have to be all the more minute if we are to be protected.
Not going away
Campaigners’ concerns about fracking are overarching. They range from polluted drinking water and earthquakes to its contribution to greenhouse gas emissions. While the government’s financial resilience checks are a welcome measure, they should also be approached with caution. Because the government has done nothing to indicate it’s listening to people’s concerns over fracking. So, testing fracking companies’ finances appears to be more empty gestures in the ongoing saga of this dirty industry.
– Read more about fracking from The Canary.
Featured image via Matt Brown – Flickr
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