Oil & Gas Authority challenge heading to the High Court

21 Feb 2020

Planning and Environment

A judge has ordered a full hearing to consider whether a government decision to allow the sale of Third Energy, a fracking company, properly considered the risk to the taxpayer that clean up costs would not be met under the new owners. The case, brought by North Yorkshire campaigner Eddie Thornton, challenges the Oil and Gas Authority’s decision to allow the sale from a Barclays Bank subsidiary to York Energy, a newly incorporated affiliate of a Caymans company (Alpha Energy) with no history of operating in the UK.

Though the transaction was described as a ‘sale’, Barclays forgave £80 million of the company’s debt and paid an additional £12 million to offload the company. There is a significant risk that the new owners will use the funds on a risky bid to strike new oil or gas, leaving the company with nothing in the bank if they fail. This would leave taxpayers on the hook for the clean up costs of the company’s drilling sites in its licence areas, potentially running to tens of millions of pounds.

Eddie Thornton was concerned when he learned that the fracking licencee in his area, Third Energy, sold up to Alpha Energy. He was aware that in other countries fracking companies are going bust and taxpayers are picking up the tab for decommissioning and clean-up costs, to the tune of billions of dollars. Scrutiny of the deal proved to be unsatisfactory, and in October 2019, Thornton issued a claim for Judicial Review. On 7 February 2020 Mr Justice Supperstone ordered a rolled up hearing of the Judicial Review application. In practice, this means that a High Court judge will now consider the grounds of challenge and whether the Oil and Gas Authority’s decision to allow the sale was lawful at a full hearing lasting 1-2 days.

The details of the transactions were revealed in the company’s accounts and through bringing the legal challenge against fracking regulator the OGA.

Mr Thornton launched the challenge on behalf of his community after he claimed the government failed to carry out the adequate financial assessments of the companies in the transaction. Accounts show York Energy have a share value of just £10, and the company appears to have been incorporated solely for the purposes of this takeover in February 2019.

Mr Thornton said: “Given that existing legislation places the burden for decommissioning onshore assets onto the taxpayer if the licence holder goes bust, Barclays have dropped this like a hot potato, even giving away money to get rid of Third Energy. The government regulator is completely ignoring its duty of care towards our community. My legal team believes the Oil and Gas Authority failed to follow the law when it neglected to carry out the requisite thorough financial assessments before waving through this takeover. The public could now face a huge bill for decommissioning all the old wells and pipelines across the entire suite of licences in North Yorkshire if this new company goes bust.”

Estelle Dehon who is representing Mr Thornton with Marc Willers QC of Garden Court Chambers, said: “The sale of Third Energy shows how vital it is for there to be proper financial regulation of fracking companies. The fracking boom has been built on low interest rates feeding capital into high risk ventures with shaky cash-flows and questionable economics. Mr Thornton’s claim has uncovered that, despite the OGA identifying a “foreseeable risk” that, after the transaction, Third Energy “will be unable to pay for decommissioning activity when it falls due”, and despite informing DBEIS that “[t]here are… risks associated with allowing the Transaction… and the OGA cannot provide any assurance that [Third Energy] will ultimately be able to meet its licence commitments, including decommissioning”, the OGA supported the sale. This is not robust regulation. Nor was it lawful, given the OGA’s legal duty to assess whether fracking companies have financial capacity to discharge their decommissioning obligations.”

Mr Thornton is fundraising for the costs needed to bring the case here

Mr Thornton’s legal team are Matthew McFeeley of Richard Buxton Environmental and Public Law, Marc Willers QC of Garden Court Chambers and Estelle Dehon of Cornerstone Barristers.