Francis Egan, CEO of fracking company, Cuadrilla, gave evidence to the Lords Economic Affairs Committee last week, and later repeated what he said in an article published by The Telegraph.
Egan said that Cuadrilla intend to float the company on the stock market if Lancashire exploration was successful, to raise funding. He said the company (currently financed by Cayman Islands-based Riverstone Holdings, and A J Lucas, an Australian company which is finding it hard to stay afloat without its Chinese backing, plus a minor stake by Centrica) would look to “go to equity markets or the debt markets to scale up”.
In other words, this company, which has been promoted in the media as an “energy giant” is admitting it can not afford to fund the fracking which it has been promising. Last year, Cuadrilla lodged accounts showing a $17 million loss.
Whilst it is disturbing that the UK government has seen fit to place most of its fracking eggs in the basket of an offshore and foreign-funded venture company, there are further implications for Lancashire in what Francis Egan told The Telegraph and the Lords.
He said the initial work has been largely funded by a 2013 deal with Centrica, which bought a 25pc stake in Cuadrilla’s Lancashire licence area. Centrica later backed away somewhat, reducing its financial obligations to the Bowland Shale, as delays hampered Cuadrilla’s plans. Egan told a House of Lords select committee:
“People are comfortable to invest in four wells. The next test will be: are they comfortable to invest in a production site with 10 wells or 15 wells or 20 wells?”
The implication seems clear that Egan is worried that industry backers will be hard to come by for a large production site. Why would this be?
The first reason that springs to mind is that the industry has little faith in what is effectively a finance company, set up in 2008 to buy into the 13th round of onshore licensing. It has no real experience beyond running one conventional well in Fylde, which had been operating successfully for 20 years before Cuadrilla bought it as a promotional gimmick. All of Cuadrilla’s efforts to drill and frack have so far been unsuccessful. They were routed at Balcombe, and in Lancashire had a string of drilling failures, and of course the only UK shale fracking to-date ended up with earthquakes, and a deformed well at Preese Hall.
It would not be surprising, therefore, if the industry had little confidence in such an upstart.
But maybe there is a second reason, given what Egan said, that the industry is not confident that shale fracking can ever happen in the UK on a large scale.
Cuadrilla have boasted of being able to drill up to forty wells, from a single wellpad. This has been the aspiration fuelling, amongst other reports, the Institute of Directors report (paid for by Cuadrilla) figures used by the government to boast of the economic and energy security potential of shale gas.
Now, Egan expresses doubts about ease of acquiring funding for ambitious plans to drill only up to twenty wells per pad. The industry has perhaps no confidence in the ability to build and operate such pads in the UK.
It seems, Egan is backtracking. Or is he? Well it is a mixed message, as he also told the Lords this:
“A well is very modest. You could drill a well in that area there. A typical site, so our sites in Lancashire where we’re drilling four wells, is 2ha, which is the size of two football pitches. But on 2ha you could fairly easily fit 40 wells on it. The surface area is probably the most modest of any energy development.
“The issue tends to be typical planning issues around traffic and noise. The land take for shale is an order of magnitude lower than wind or solar or nuclear or anything per unit of energy produced, because it’s all happening beneath the ground, 8,000ft beneath the ground. So the surface land impact is quite small.”
This is the argument we have heard for some time now. By packing in many wells to a pad (nice to know Egan is admitting that a wellpad takes up more than one football pitch of land, at last) there is less surface take. This is used to counter the industrialisation of the landscape argument.
The way Cuadrilla has proposed fitting 40 wells on a single pad is by drilling around 10-12 vertical boreholes, and sprouting three or four horizontal wells (at various depths) off each. This would indeed reduce surface land take, although Egan omits reference to other infrastructure needed to support a pad, pumping stations, access roads, large-scale disturbance for burying pipelines etc. There is nowhere in the world where this wellpad plan has been carried out and become a norm. We are in uncharted territory, in terms of technical ability.
But where 40 wells plan will never work is in planning terms. Egan referred carelessly to planning issues like traffic, but these are exactly the issues which will strangle his ambition.
At each of the Fylde sites, Preston New Road and Roseacre Wood, Cuadrilla is planning to drill four wells. Significant issues have been raised with regard to visual disturbance, noise and light disturbance, traffic volumes, and potential environmental issues. These convinced Lancashire County Council to refuse the applications. That has now been overturned by the Secretary of State for Communities and Local Government, of course, although the legal battle is not over yet.
For each well, Cuadrilla allow three months for drilling the first vertical borehole, and two months for horizontal drilling. Five months total, although they claim to be able to cut down the time for the subsequent wells to three months. So for each wellpad this amounts to 14 months of continuous drilling operation. This disruption through the effect of noise on neighbours (and some live only 300 metres from the site) was a prime reason that Preston New Road was refused.
14 months of drilling noise 24-hours a day is bad enough, but that is even before considering the actual fracking, which for each well is estimated to take two months. The only way the timescale could be reduced is by employing more than one drilling rig on the site, but needless to say that could effectively double the noise problem unacceptably.
Now imagine this scaled up to a full production 40-well site, which Cuadrilla could have in their sights if their Preston New Road exploration was successful. Cuadrilla would be proposing a continuous drilling operation extending over many years. UKOOG figures for duration of drilling suggests that drilling 40 wells could take a continuous operation of some 80 months to 120 months – seven to 10 YEARS. Does anyone really believe that any council would consider this acceptable? Plus fracking occurring over seven years in addition to the new well drilling? Is this what Sajid Javid MP had in mind for Preston New Road when he overturned local democracy and granted Cuadrilla permission?
The “no industrialisation” argument is based on the idea all that would be left behind during a production phase would be the equivalent of a few “Christmas trees” on a site. The impression given is that this would all be tidied up over a matter of months. But if it takes over 12 years to get to that point, the benefits of mega-wellpads is nil – at least for local residents. It is a total disaster.
Do we expect people of the Fylde to put up with noise for over a decade? Do we expect them to accept maybe 200, 000 HGV movements on their local roads for the same period, with up to 100 movements a day? And is the future of our local area to be 80 or 100 such wellpads (as Egan continually boasts as his intention) all simultaneously in operation for decades? I don’t think so. Whether with 4,000 separate wellpads or 100 megapads, this is full-on industrialisation of an entire area, and we will not have the wool pulled over our eyes.
No wonder Francis Egan is concerned about his project. It will never happen. It’s nothing more than a pipe dream.