Introduction

The government’s consultation on underground drilling access for the extraction of gas, oil and geothermal energy came to an end on 15 August 2014. The consultation sought views on the government’s proposal to introduce new legislation that limits the rights of landowners in respect of drilling at depth. It is expected that the government will report on the outcome of the consultation in the autumn.

Current Legal Position

At present landowners enjoy not only ownership of the surface of the land but also, with some statutory exceptions, ownership and all associated rights down to the “centre of the earth”. This is a long held common law principle dating back to 1766 which was reaffirmed in the recent case of Bocardo SA v Star Energy (2010).

These subterranean ownership rights present considerable issues for the fracking and geothermal industries which need to drill long horizontal wells extending, in some cases, for over two miles. Energy companies need to obtain access consents from all landowners through which these wells will pass in order to authorise what would otherwise be a trespass. A large number of access consents may therefore be necessary for a single project and this creates a significant administrative burden on the industry.

If agreement cannot be reached with all the relevant landowners, it is likely that the project in question will be delayed if not prevented completely. In the case of oil and gas companies, there is currently an appeals process via the Secretary of State and the courts but it is slow and costly. In the case of geothermal companies though, there is currently no appeals process, and, as geothermal projects are likely to be concentrated in urban areas, the risk of being unable to reach agreement with all the relevant landowners is greatly increased due to the high density of land ownership.

The Government’s Proposal

The government’s proposed response to these issues is to provide statutory rights of access to oil and gas and geothermal energy reserves at depths greater than 300m below the surface of the land. This would effectively provide a definitive vertical boundary on the rights of landowners but ownership of the land below this level would still be retained. The current regime would continue to apply to access at depths of less than 300m. The government’s guidance indicates that the 300m level has been chosen simply because the landowner is very unlikely to have any use of the land below this level and below this depth the drills used in creating the wells may need to change direction. Fracking itself would occur at much greater depths – typically over a mile down.

The proposal does not affect any other permissions that energy companies may be required to obtain such as planning and environmental consents. Also, any above ground access rights would still need to be negotiated with individual landowners.

Compensation

The current compensation regime requires energy companies to negotiate and reach settlements with each individual landowner. There is no standard tariff for securing access rights and so settlements can vary widely depending upon the negotiating strength of the individual landowner. However, the case of Bocardo SA v Star Energy referred to above established that any damages awarded for trespass are likely to be nominal reflecting the fact that the landowner’s use and enjoyment of the land will not be affected.

In order to reduce the administrative burden of making payments to numerous landowners, the government’s proposal is to replace the current settlement regime with an industry-backed voluntary payment system where a £20,000 one-off payment is made for each horizontal well that extends more than 200m laterally. This payment would be made to a community organisation (as agreed by the energy company and the local community) rather than to individual landowners. The government has indicated that it favours a non-statutory mechanism to deal with these payments, albeit with a reserve power to enforce such arrangements through regulation if the voluntary system is not honoured.

Notification

The government’s proposal also envisages a system of public notification whereby energy companies would be required to provide details of the proposed subterranean wells, the land through which access is required and the payments that will be made in return for access. Again, this notification system is intended to be run by voluntary agreement with the industry.

Conclusion

Whilst we await with interest the government’s report on the consultation process, if, as anticipated, the proposals do become law, they will remove a significant obstacle to the development of new oil and gas and geothermal energy industries in the UK. The practical effect of limiting a landowner’s subterranean rights is likely to be negligible for the majority of landowners whilst a £20,000 payment is likely to provide some tangible benefit to local communities. There is, however, no denying that these proposals, if implemented, will represent an erosion of long-established landowner’s rights which may not be welcomed by all considering the concerns held by many in relation to the environmental effects of fracking.