Friday, 29 March 2013
Offshore Fracking and North Sea Regulations
Trapoil, a real tiddler of a North Sea explorer, has made a big fanfare about starting to do off-shore fracking in the North Sea. Regular readers will know how immensely keen we are here on fracking for gas and oil as it has the potential to solve our long-term energy needs in a way that wind farms simply won't.
And so to do it off-shore, all the better. However, since 2011 the North Sea has been a complete disaster zone for finance. George Osborne's tax raid inflicted massive damage on tall the smaller AIM listed oil companies that had moved in to replace the majors. Even the majors cut back on investment and since then falls in oil production have held down UK GDP and caused a double dip recession.
Now there are some hints at changes to the rules and regulations which will allow a better shot at exploration. But there is another problem that has reared its head and that is as the big deposits are all discovered, the smaller companies are not having such a good strike rate with their prospective drilling.
This means that the banks who used to lend to the companies are quite sceptical about lending more money, plus of course they are in financial difficulties themselves and much more risk averse to high risk lending than they were. Prior to 2008/10 Lloyds was the largest lender to the companies in the region and of course now this is one of the banks in the worst condition.
So whilst it is great that the Coalition Government are now looking to change the DECC rules to try and encourage the sector, it is only after two very deep self-inflicted wounds have been taken. It's a long way back from here and I doubt North Sea production is going to recover in time to boost the economy before the election.