[authors: Nina Howell, Susanna Marshall, Khaled Dahlawi]
Introduction
In this article we explain the current status of shale gas activities in the UK, and comment on the regulatory framework within which shale gas activities may be undertaken.
Current Status of Shale Gas Development in the UK
In June we reported that Cuadrilla Resources Corporation (Cuadrilla), a UK-based E&P company, was the only company licensed to develop shale prospects in the UK. In September Cuadrilla announced that it had discovered an estimated 200 trillion cubic feet of gas in an area near Blackpool in northwest England. The discovery is significant because it measures more than 40 times the previous projections of the UK’s entire shale gas reserves. Oil & Gas UK, the UK’s leading industry body, calculated that the find was equivalent to more than four times all the gas remaining in the UK North Sea, and enough to fuel the UK for 56 years.
The UK is facing increasing pressure to find new fuel supplies, and the development of potential shale gas opportunities continues to receive increasing interest from energy companies looking to diversify into unconventional resources. Cuadrilla’s recent discovery was seen as a possible solution to the UK’s energy concerns. However, in May two tiny earthquakes were recorded in the area during drilling operations, causing Cuadrilla to suspend further drilling in order to carry out an independent seismic inquiry into the cause of the tremors. The report, released in November, concluded that there was a high probability that Cuadrilla’s fracking activities were the cause of the tremors.
The recent report is likely to re-open the debate in the UK about “fracking” and its potential environmental effects, a debate that has already seen France ban the process entirely. The UK Government’s Department of Energy and Climate Change (DECC) is now due to review the implications of the report in consultation with key regulators and independent experts before it makes any final decision on the resumption of shale gas operations.
Regulatory Considerations for Shale Gas Development in the UK
Licences
In the UK, ownership rights to all oil and gas vest in the Crown. This is in contrast to the US where mineral rights typically vest initially in the surface landowner extending vertically downwards from the demise of the property and may be severed from the land and traded or leased for commercial exploitation. The UK Crown has devolved the power to grant licences to exploit oil and gas both offshore and onshore in the UK to DECC. In May 2011, a Parliamentary Committee report gave DECC the green light to issue further shale gas exploration licences.
A company seeking to develop shale gas prospects in the UK must obtain an onshore licence granted by DECC pursuant to periodic licensing rounds in respect of defined licence areas (known as “blocks”) throughout the UK. The onshore licence confers on the licencee a general right to “search for, bore for and get” hydrocarbons, including shale gas, but does not confer any right to enter on, or interfere with, land within which shale gas prospects are located.
Land Rights
A licencee is responsible for securing access rights from the landowner of the site within the licence area on which it plans to construct a drill site, usually by entering into a lease, or option to lease subject to planning permission, with the landowner. In the UK, individual landowners must consent to licencees accessing the land covering the license area and terms of access are negotiated on an arm’s length basis. However, if a landowner refuses access or demands unreasonable terms the licencee has a statutory right to apply to a court to seek access rights.
Planning Permission
A licencee must also acquire planning permission to develop a drill site from the relevant Local Government Authority before any shale gas exploration activity can commence. Shale gas developers in the UK face more complex planning issues than US counterparts. The UK is considerably smaller and more densely populated than the US, with one of the world’s most regulated planning regimes. There are no hydrocarbon or shale specific planning laws and the Town & Country Planning Acts of 1990, 2004, and 2008 apply to shale developments as they do to any other commercial or residential development. A separate application is required for each stage: exploration; appraisal; and full development. Generally, only the application for full development must be accompanied by an environmental impact assessment, but a planning officer may require additional information at any stage if there are specific concerns. In its deliberations, the Local Authority must consult with certain groups such as the Environment Agency and any site-specific interested groups, such as Natural England or the Royal Society for the Protection of Birds. A licencee must also evidence that it has informed and consulted the local public on the development. If granted, the planning permission may contain conditions, such as restrictions on drilling hours, or a requirement to prepare and implement plans for site restoration or waste and water management.
