Unearthed

Low oil price forces firms to surrender fracking licences

The oil price – which has recently hit seven year lows – may have an impact on exploration efforts in the UK as an Unearthed analysis suggests 89 licenses to hunt for oil and gas have been returned to the government in the last 18 months.

Bloomberg brent
Brent crude prices have hit lows of under $40/bbl this month. Source: Bloomberg

This comes ahead of an imminent announcement on which blocks the government will allow for fracking after a consultation into the 14th licencing round for oil and gas – and comes just after the UK government voted to allow fracking under National Parks and a Greenpeace/Unearthed investigation revealed fracking firm links to tax havens and overseas ownership.

BP, Shell, Centrica and Total are among the companies to surrender the licences from previous rounds back to the government, which are equivalent to more than half (56%) of all the licenses awarded in the 14th licensing round, which was announced this summer.

Igas, the UK’s largest shale gas firm, have also surrendered several licenses in the past year and a half. This analysis comes after the Igas recently announced £15m in losses relating to its unconventional oil and gas exploration due to the lower oil price.

The firm’s latest accounts noted: “A charge for impairment of £15.4m (£7.9m net of associated deferred tax credit) (2014: £3.3m (£1.7 net of associated deferred tax credit)) was incurred during the year for exploration and evaluation assets following the relinquishment of PEDL 78-2 exploration licence in Staffordshire and the impairment of the exploration and evaluation asset at Singleton and Baxters Copse, in light of current oil prices.”

Analysis by Unearthed this summer suggested fracking in the UK isn’t financially viable as the cost of extracting gas continues to outstrip the price of gas – though exploration may continue to make sense for tax reasons.

Our analysis, based on extraction cost estimates from EY, Bloomberg and Oxford University, showed that firms fracking in the UK would struggle to break even.

The low price of oil also looks to be having an impact on the shale gas industry, with energy experts stating that companies using costly means of fossil fuel extraction, like fracking, are struggling to keep up with oil producers.