Communities ‘should get bigger share in profits from fracking’

Will Smith, senior portfolio manager at CQS.
Will Smith, senior portfolio manager at CQS.
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COMMUNITIES SHOULD see a greater share of the profits from fracking if Britain is to fully embrace shale gas exploration, according to a leading hedge fund manager.

Will Smith, senior porfolio manager at CQS, the $14bn fund owned by Tory donor Sir Michael Hintze, warned that Europe could lose manufacturing jobs and industries to the United States unless it welcomes the controversial form of energy.

In an interview with The Yorkshire Post, Mr Smith praised the Government’s willingness for shale exploration.

He said: “There’s no doubt central government are very keen for it to happen, can’t fault that, but it’s at a local level that you’ve got to have a license to operate.”

Mr Smith, who manages four natural resource funds for CQS worth £250m, said: “It’s become a hot topic, there’s an awful lot of disinformation out there.

“But I think if people actually travel over to North America and see these guys in operation, you can see that it can be done in a relatively close environment.”

He mentioned a drilling rig in northern Colorado, which is based on the practice fairway of a golf club and next to a housing estate and school.

“Of course the difference in North America is the landowner has a direct economic benefit,” he said.

“That high school got $600,000 in the first six months of production, (which) sort of goes a long way to overcoming objections.”

In Britain, the Government is the main beneficiary, while local communities suffer disruption, said Mr Smith.

He added: “We’ve got to have that debate about who gets the economic impact from all of that. I hope we get that and I hope it’s an informed debate.

“I don’t think we can go as far as the North American model but I think a bit more could be given away.”

Mr Smith said Yorkshire businesses would benefit from a lowering of energy prices if UK shale gas exploration was to go ahead.

He said: “We are paying, Europe is paying twice the price for their gas than North America. Over time, and it isn’t just me, it’s the International Energy Agency saying North America is going to be the low-cost manufacturing sector.

“The question for the UK and mainly for Europe is, do you want to see that transfer of jobs, of industries, over to North America because of their cheap power advantage?”

Oil price has fallen nearly 40 per cent this year, as the sluggish global economy has led to less oil being consumed than anticipated by markets, leading to an oversupply.

Much of the oversupply can also be attributed to America’s frantic extraction of oil from shale formations over the past four years.

Hydraulic fracturing, or fracking as it is more commonly known, involves drilling deep into the ground before a mixture of sand, water and chemicals is pumped into rock at high pressure, fracturing it and allowing gas to flow out of the well.

Mr Smith believes that concerns over the water used to extract the gas are misguided.

“In the very early days they were just throwing it into the river. That now has to be treated, recycled,” he said.

Mr Smith was in Leeds to visit shareholders in CQS funds, which include brokers Brewin Dolphin and Charles Stanley, and share his views on the natural resource sector for investors.

It has been a difficult three years for resource investors, capped by the sharp decline in oil prices.

Mr Smith, who was born and raised in Keighley, is senior fund manager for City Natural Resources High Yield Trust and New City Energy. He also co-manages other CQS funds.