The industry compensation arrangements voluntarily adopted by fracking operators require them to make available to the local community a sum of £100,000 per well site during the exploration stage, when a small number of wells will be drilled and tested, and 1% of revenues earned from full production.

No payments have been made so far but it is envisaged that the sums involved would be distributed by local councils as they see fit, for the good of the community.  This does not offer any prospect of compensation for individuals directly affected by fracking activity.

In July 2016, the government published a consultation document seeking responses by October to proposals for establishing and distributing of a “Shale Wealth Fund”, which it argued would enable communities to ‘share in the benefit’ from local fracking.  The main proposal was to require fracking operators to pay a tax of 10% on the profits they made from production.  The maximum pay-out proposed for each community was £10 million per fracking well, but it was expected that this would be paid out over the anticipated 25-year life of the well.

This was interpreted in the media as implying that if an average community comprised 1,000 homes, then individual property owners might therefore benefit from lump sums of up to £10,000.  Some newspapers speculated that if communities only averaged 700 homes, then they might get as much as £13,000 each.  Using the same logic though, as Formby has some 10,000 homes within its boundaries, the appropriate calculation would be only £1,000 each or £40 per year.  Such meagre compensation needs to be judged against the prospective loss of up to one third of property values due to fracking in the locality.

The obvious problems with the government’s proposals is that they assume that shale companies will be able to: –

  • extract large quantities of gas in an economic manner,
  • secure sufficient sales of the product at prices which enable them to,
  • make substantial profits, and be willing to
  • subsequently pay tax, rather than invest elsewhere.

There can be no guarantee therefore that fracking companies will in fact ever pay anything into this fund, and that shale wealth will ever materialise.   It should also be noted that many of the companies with PEDL licences are registered overseas, often in tax havens, restricting further the prospect of any profits being paid to affected communities.

Communities disrupted and damaged by shale gas exploration may therefore never be compensated, and their ability to hold companies liable for damages and compensation when things go wrong could be severely hampered.  Even if some volume of shale wealth is eventually generated, it is evident that it will not accrue at the time when local communities need it most e.g. to compensate for property damage, devaluation and blight caused at the outset of fracking activity.

The government framed the consultation around 18 questions dealing only with the mechanism for equitable division of the imagined proceeds.  Frack Free Formby concluded that was misleading and pointless, and we urged the government to withdraw the document, and reissue it – reflecting genuine local concerns.