- Breaking the mould
- Guarantees and the "one that got away"
- Fracking update
- Steel a march
- Put a cap on it
- Extending the reach of Adjudication into Collateral Warranties
First appeared in Informer: Real Estate Newsletter - Autumn 2013
The recent protests about proposed fracking in Balcombe have raised the profile of this increasingly controversial topic. Companies are exercising extreme caution when it comes to making sure the correct consents are in place due to the ever present threat of judicial review from objectors. For example, Cuadrilla recently withdrew an application to extend its exploratory drilling operations in Balcombe and will submit a new planning application in order to avoid any potential legal ambiguity around how the planning boundary should be drawn for a subsurface horizontal well.
The Government has consulted on this very issue (i.e. the need to serve notices on every landowner affected by a horizontal drill beneath their land) with the consultation closing on 14 October 2013.
The Government recently published new guidance entitled "Planning Practice Guidance for Onshore Oil and Gas" which pays particular focus to shale gas. The Government has decided to keep shale gas proposals within the local planning decision-making framework and not to designate it to the Planning Inspectorate. The Guidance provides both useful assistance to operators in what can be expected from the decision making process and also gives direction to the local authorities.
Key points from the Planning Practice Guidance for Onshore Oil and Gas (July 2013) are:
- Government policy encourages energy supplies derived from a variety of sources. The Guidance states that mineral planning authorities do not need to consider alternatives to oil and gas resources when determining a shale gas application.
- The Guidance also states that a number of highly controversial issues surrounding seismic risks, well integrity and the chemicals used in the fracking process are covered by other regulatory regimes. The minerals planning authority can rely on the assessment carried out by the relevant regulatory body.
- The direction to give "great weight to the benefits of mineral extraction, including to the economy" should prove beneficial to applicants.
- The Guidance states that "a prospective operator can expect a clear, timely and authoritative view on the merits of a proposal to extract hydrocarbons, as well as clear advice on consultation requirements". This requires the local authority to engage positively with the operator and develop a relationship of consultation.
- The restoration and aftercare of a site will be managed through the imposition of suitable planning conditions and, where necessary, S.106 Agreements. However, a financial guarantee to cover restoration and aftercare costs will normally only be justified in exceptional cases, therefore alleviating the financial pressure of the process.
- Annex D provides "Model Planning Conditions" which should prevent the imposition of unreasonable conditions.
The Government has been keen to publicise the various "community benefits" that will be offered by companies if shale gas is commercially extracted. For example, communities situated near each exploratory well will receive £100,000 and 1% of revenues from every production site. Such commitments are likely to be secured by a S.106 Agreement.
The Office of Unconventional Gas and Oil ("OUGO") has been set up to co-ordinate the activity of the various regulatory bodies and departments involved in the development of shale gas and provide good industry practice. The OUGO is liaising with the regulators to create a streamlined planning and regulatory system with a high degree of local scrutiny and prior consultation. Its purpose is to ensure that regulation is consistent, fit for purpose and encourages growth whilst fully protecting the environment.
The fine detail aside, one clear lesson is that, given the level of public scrutiny, energy companies investing in this technology will need to proceed very carefully in order to avoid the pitfalls and challenges that lie in the road. As a further example, apart from the planning and protest difficulties Cuadrilla has faced at Balcombe, it recently decided to cease all exploration activities at its site in Lancashire as a result of the impact of its activities on wintering birds such as pink-footed geese and whooper swans.
Nevertheless, the eventual rewards should still make tackling these challenges worthwhile.