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UK government wary of fracking finances

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In a surprise move last week, UK Business Secretary Greg Clark made approval for fracking conditional on an assessment of company finances.  This seems to mark a distinct shift in policy compared to the gung-ho approach to fracking under David Cameron.

The apparent cause of Clark’s caution concerns Third Energy’s failure to post audited accounts.  As Business Insider reports:

“Clark said he was satisfied Third Energy had met the technical requirements but is seeking further financial information about the company to help make his final decision.

“Clark said Third Energy had not yet submitted financial accounts for the period ending in December 2016, despite a statutory deadline of 30 September 2017 for them to do so.”

There is more to this than meets the eye, however.  Information released after a freedom of information request last summer showed that the fracking companies had met with the UK government in an attempt to secure government funding to make up for a dearth of private investors.  It also emerged that Cuadrilla – one of the UK’s leading frackers – had experienced financial problems and had had to restructure (i.e. sack people).

We have yet to see which way the UK government will go with this.  However, they will no doubt be mindful of what happened in the USA in the early phase of the fracking boom.  Small companies bought up drilling rights with currency borrowed from Wall Street with absolutely no intention of producing oil and gas in the long term.  Instead, taking a lead from the tech industry, the sole aim was to sell the company at a profit once the oil and gas started to flow (and, crucially, before anyone realised that it was unprofitable).

Whether this is what the UK frackers have in mind, only time will tell.  But a prudent government would want to ensure that any companies that carry out fracking in the UK are going to be around long enough to clean up the mess when they’ve finished.

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