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First appeared in Informer: Real Estate Newsletter - Spring 2013
Fracking is in the headlines again, following the Government’s decision to give it the green light in December 2012 – this decision allows companies (albeit under increased regulatory scrutiny) to begin exploring for shale gas. Below is a quick overview/update.
What is "fracking"?
Hydraulic fracturing, or "fracking," involves high pressure injection of fluid underground to release, and then extract, petroleum, shale gas or other substances embedded in source rocks. With increasing pressure on energy resources, fracking has the potential to provide vast new supplies of fuel. The process has been used for some time in oil and gas production, but only recently for shale gas in the UK at a site near Blackpool. There are now other proposed UK sites.
Practical advice – what legal rights are needed?
Essentially, a fracking operator will need to ensure that it has:
(1) the right to be on the land;
(2) a regulatory licence to extract the gas; and
(3) planning permission to operate from the site.
We explore these in more detail below:
Land rights – landowner's permission
Generally, a landowner owns everything up to the sky and down to the centre of the earth, so anyone intending to drill and extract will need the landowner's permission. Failure to do so could amount to a trespass. The landowner could stop the operation and potentially sue for damages.
This principle was applied in the 2010 case of Bocardo SA v Star Energy UK Onshore Limited, where the court found the defendant to be a trespasser because it had installed pipes under Bocardo's land without consent, even though Star was not disturbing any enjoyment of the land itself.
As with any utility company undertaking below surface works, an operator should ensure that it has obtained sufficient rights from the landowner to enable it to carry out its operation for the lifetime of that project.
The type of agreement and payment structure can take different forms depending on the nature and extent of the rights required, and can be tailored for each project.
Licensing – licence from DECC
All petroleum resources in the UK are owned by the Crown pursuant to the Petroleum Act 1998. This allows the Government to grant exclusive rights to search and explore for petroleum. This right will take the form of a Petroleum Exploration and Development Licence which is issued by the Department of Energy and Climate Change ("DECC"). A licence holder must be able to meet DECC's requirements and comply with certain terms and conditions. Licence holders can apply to court for the granting of any “ancillary” rights (such as a right to enter and sink boreholes into another’s land) that may be required.
In addition to obtaining a licence, an operator needs to obtain planning permission for exploration from the local authority pursuant to the Town and Country Planning Act 1990. If the licence holder then wishes to go into production, there are other consents that it might need, including permission from the Coal Authority (if operations are to penetrate coal seams) and planning permission from the Minerals Planning Authority.
The government faces a challenge in balancing the potential economic benefits of extracting new fuel sources against the environmental concerns fracking entails. A recent review of the fracking process called for more robust UK legislation, with officials hinting at introducing similar rules to those that cover offshore drilling.
However, given the high levels of public scrutiny fracking has attracted, it is clear that energy companies investing in this technology will need to tread carefully to avoid potential pitfalls.
Please contact us if you would like to know more.
Maryam Collett, Associate, Energy and Infrastructure at Field Fisher Waterhouse LLP