UK: Shale Gale Blows On In 2015

Last Updated: 19 February 2015
Article by Roy Pinnock

Shale gas exploration looks set to face a defining year in the UK as changes to land access rights are finalised and new PEDL awards extend the licensed onshore area. We highlight the ongoing interest in shale and the implications of the Government's emerging Infrastructure Bill.

Investor and public interest unabated

The Government's 2014 autumn statement announced a £5m fund for public information on shale regulations and £31m for research centres. It also gives details of a Sovereign Wealth fund for shale. Investors are for the time being following suit: the announcement by Ineos last year that it intends to invest £640m in UK fracking illustrates ongoing commercial interest in shale prospecting.

Meanwhile, Tamboran is reportedly seeking damages from the Northern Ireland government after being told that its drilling licence will not be extended and that its test drilling would require planning permission. The proposals had generated significant public controversy despite not including any unconventional activity.

PEDLs and Mergers

The Government is expected to announce the outcome of the 14th Onshore Licensing Round for exploration and development licences soon, which may significantly expand the areas licensed for onshore oil and gas development.

The Competition and Markets Authority's recent decision not to refer IGas Energy plc's acquisition of Dart Energy Limited  to the Competition Commission, notes the importance of DECC's role in agreeing works programmes and other controls for shale development at the PEDL award stage. As we noted last summer, the  decision to address environmental assessment requirements at the individual PEDL licence stage means that the PEDL award decisions will be more heavily scrutinised than ever.

Land access rights on the way

The Government consulted last summer on streamlining underground access rights for geothermal and PEDL operators so that they do not have to rely on the existing but cumbersome compulsory wayleave process under the Petroleum Act 1998.  The Infrastructure Bill 2014-15 has reached its Committee Stage in the House of Commons and is anticipated to come into force before the General Election on 7 May 2015. The impact assessment recently published by the Regulatory Policy Committee validates the Government's estimate that the access measures will generate a £65 million annual benefit for business.

The Bill includes the following measures intended to overcome difficulties of notifying and negotiating with the number of owners who may be affected by, and resisting, fracking operations:

  • an automatic right of access to land at a depth of at least 300 metres below the surface for petroleum and deep geothermal operations.
  • a scheme for payment and notice to affected landowners where the right is to be exercised.

Drill Down

It is important to note that:

  • The existing compulsory wayleaves regime – negotiation or court process – will apply above (and including) 300 metres depth.  Surface access deals will therefore continue to attract significant value.
  • Operators will be able to rely on the new, automatic, access rights for lateral drilling below 300 metres, without trespass claims.
  • Two further property rights are included: firstly, the right to 'pass and keep any substance' below 300 metres; and secondly, to leave land 'in a different condition from the condition it was in before an exercise of the right of access (including by leaving any infrastructure or substance in the land)'.
  • The community benefits scheme is voluntary.  It currently works off the UK Onshore Operators Group proposal for £20,000 to be paid to UK Community Foundations on trust for the local community for each unique lateral well.  The Secretary of State will have a power to step in where this is not being honoured. The Bill itself envisages that the payments are made in respect of each unique lateral over 200 metres, but it remains unclear whether landowners will benefit.
  • Notice requirements will also apply.

Ineos have committed to guaranteeing local communities a 6% share of future shale revenues – it estimates this could be worth up to £400m over 15 years in a 100 km2 area with 200 drilled wells.  Further details are awaited on how UKOOG and Ineos will secure these payments and define the benefitting communities.

Originally published January 12, 2015

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