United States: Shale Developments – Coming To A Neighborhood Near You

As energy costs in the US drop on the back of shale oil and gas discoveries, the rest of the world is gripped with envy. Other countries have also started dreaming of cheap power and energy security through shale. The UK Government wants a piece of the action and is desperately trying to make itself the poster boy for European shale gas.

There are only two government figures for the UK's shale resource: the British Geological Survey's ("BGS") central estimate of 1300tcf shale gas in place in the Bowland shale basin, and its recent estimate of between 2.20 and 8.57 billion barrels of shale oil in place in the Weald Basin. These are not, however, estimates of how much shale resource is technically recoverable. Only exploratory drilling will reveal the extent of the recoverable reserves and to date, little or no exploratory drilling and appraisal activity has been undertaken in the UK.

Since the Government gave permission for hydraulic fracturing to resume in December 2012, the Environment Agency ("EA") has not received a single permit application to undertake hydraulic fracturing. Cuadrilla Resources, the owner of the only shale exploratory well in the UK, has only drilled three wells in the Bowland shale and partially fractured one since 2008. In the US, more than one hundred wells were needed before the industry was satisfied that shale gas was viable. So why is progress of the shale industry in the UK so painfully slow?

Public opinion is divided. On the one hand, in light of concerns about water contamination, earthquakes and disruption to rural communities, there are calls for a more robust and rigorous regulatory regime. On the other hand, there seems to be a general consensus within the industry that the regulatory regime is unnecessarily complex with significant levels of duplication of responsibility. The UK Government has made its primary intention clear. The House of Lords Economic Affairs Committee Chair Lord MacGregor said that the Government's commitment to go "all out for shale" had to be backed by a simplified and easier-to-understand regulatory regime.

What is this regulatory regime they talk of?

The UK's regulatory framework for onshore exploration and production applies to conventional as well as unconventional resources. There is no separate regime for shale gas and oil, except that additional rules apply to hydraulic fracturing.

In a move to clarify the regime, the Government established the Office of Unconventional Gas and Oil in December 2012 to work closely with regulators and the industry to ensure that the applicable regulatory regime is as clear and simple as possible, whilst safeguarding public safety and protecting the environment. Additionally in December 2013, the Department of Energy and Climate Change ("DECC") published a "Regulatory Roadmap" to help developers understand the regulatory process for onshore oil and gas exploration and appraisal in the UK. The regulations require the fulfillment of a number of steps before a shale gas project can take place and are outlined below.

The Licence

The first step in the process is the procurement of a licence to conduct exploration and production. The Petroleum Act of 1998 vests all rights and ownership to hydrocarbon resources in the Crown and these rights are administered by DECC on behalf of the Crown. Companies must obtain from DECC a Petroleum Exploration and Development Licence ("PEDL") before they can undertake an onshore oil and gas exploration or production, including in relation to shale gas and oil. The PEDL will give the relevant company exclusive rights to explore for, and develop, the hydrocarbon resources in a defined area for a defined period of time.

Access to Land

While the Crown owns the rights to the hydrocarbons, land ownership legally entitles the owner to rights at the surface and down to the centre of the earth. Any developer wishing to carry out operations at the surface or underground must obtain the landowner's permission to do so. The Supreme Court in Bocardo SA v Star Energy ([2010] UKSC 35) held that if a developer does not acquire the landowner's permission to pass through its land or has not obtained a court order granting such rights, the developer will have committed a trespass if it proceeds with any activity under the land even if there is no damage to the landowner's property.

At present, the developer has to negotiate terms with each landowner – there is no standard agreement or regulation as to terms that can be agreed. If a deal cannot be agreed, the developer can make an application for the case to be referred to the courts via the Secretary of State. The need to individually negotiate and agree terms with landlords has proven to be a major barrier to shale gas developments.

On 23 May 2014, DECC published for consultation proposed new rules regarding rights to access land. The proposal contains three elements:

  • An automatic right of access to undertake horizontal drilling, provided such works take place at least 300 metres below the surface of land. This depth is taken as that below which a landowner is very unlikely to have any use for the land. The developer would still need to obtain all surface access rights and permissions (environmental, planning, health and safety, etc.) in order to commence drilling.
  • A one-off payment, either to individual landowners or a community body, of Ł20,000 for each horizontal well that extends by more than 200 metres laterally. Where lateral drilling vertically coincide, payment will be made only once. This is a move away from the ability of landowners to demand an amount of payment they consider appropriate and is in sharp contrast to the approach taken in the US. In the US, notwithstanding the fact that the individual owner of the land is unlikely to ever make use of its rights, the owner is entitled to receive value for them in the form of lease payments and a royalty from production (the minimum percentage for which is usually protected by statute).
  • A public notification system, under which the developer would give notice to the affected community of matters such as the relevant area of underground land, and details of the payment that will be made in return for the access.

The consultation closes on 15 August 2014. The Queen's Speech on 4 June 2014 confirmed that a new Infrastructure Bill will be introduced which will include provisions designed to address the access issue.

Environmental Risk Assessment

DECC requires the compilation of an environmental risk assessment ("ERA") for all proposed shale gas operations where hydraulic fracturing is planned. This involves carrying out an overview assessment of environmental risks (including risks to human health) covering the full cycle of the proposed operations (including well abandonment) with the participation of stakeholders (including local communities). DECC is consulting with other regulators to develop agreed guidance for developers on the preparation of suitable ERAs.

Planning Permission

Any developer seeking to drill and subsequently test for and possibly extract shale gas has to apply for planning permission from the relevant local Mineral Planning Authorities ("MPAs"). The primary purpose of UK planning law is to ensure that the development is environmentally acceptable. Key issues that the MPA will be concerned about are site location, traffic volumes, noise, groundwater, induced seismicity and waste.

The MPA will carry out an initial screening exercise to determine whether the proposal for extraction requires an environmental impact assessment ("EIA"). If the development is likely to have significant environmental impact, the developer will be required to complete an EIA. It is therefore highly likely that an EIA will be required for exploratory drilling operations which involve hydraulic fracturing.

The MPA is also responsible for ensuring proper restoration and aftercare of the site when operations terminate. As part of the application process, a plan for restoration of the planned development site must also be submitted to the MPA. If planning permission is granted, the MPA will monitor and inspect operations to ensure that they comply with any conditions imposed.

The MPA advertises planning applications that it receives and has the authority to make representations on individual proposals. Before the MPA takes a decision, it is required to consider the advice provided by other agencies, such as the EA, and also to extensively consult with statutory consultees and NGOs.

Environmental Permits

Concurrently with the planning permission process, the developer must serve notification on the EA of its intention to drill accompanied by a detailed statement setting out information on well drilling, well casing, storage of substances including fuel and chemicals and a proposed plan for dealing with waste.

The developer will also require environmental permits where there is:

  • groundwater activity, unless the EA is satisfied that there is no risk of inputs to groundwater;
  • mining waste activity, which is likely to apply in all circumstances;
  • industrial emissions activity, when the developer intends to flare more than 10 tonnes of gas per day;
  • radioactive substances activity, which is likely to apply in all circumstances; and
  • water discharge activity, if surface water runoff becomes polluted.

The technical documentation supporting the applications for the planning permission and environmental permits are often the same, and best practice recommendation is for "parallel tracking" of environmental permits and planning applications.

Coal Authority

Under the Coal Industry Act 1994, any well likely to enter or pass through a coal seam, for any purpose, will require the agreement of the Coal Authority. Such agreements lay down stringent requirements for the entering of coal seams and the subsequent provision for the supply of information. This includes accurate plans and sections of all wells drilled and full well logs.

Health and Safety

In the UK, all offshore and onshore wells must be designed and constructed in accordance with government regulations. Inspectors from the Health and Safety Executive ("HSE") and an independent well examiner (who is appointed by the developer) are required to check to ensure that the developer is following the regulations.

Prior to the start of drilling, the developer is required to notify the HSE of the well design and operation plans. The regulations also require a developer to provide the HSE with regular reports of any activities on the well. HSE well specialists and the independent well examiner will undertake regular assessments of well integrity.

Drilling Consent from DECC

The PEDL does not give consent for drilling or any other operations. Developers are required to separately seek final consent from DECC to drill once all permissions and permits from other bodies discussed above have been granted.

For shale wells where an ERA is required, DECC is charged with reviewing the ERA. If hydraulic fracturing is intended, DECC will require that a fracturing plan to address the risk of induced seismicity is submitted and will review this plan before these operations are permitted. Finally, DECC will check that the EA and the HSE have no objections to the proposed operations before consent is given.

(In)efficiencies

Notwithstanding the various attempts to simplify the regulatory regime alongside the introduction of the Office of Unconventional Gas and Oil, there continue to be some nagging issues in respect of duplication of responsibilities. For example, the developer's plans are approved by DECC (to mitigate the risk of induced seismicity), the EA (for air emissions, to mitigate the risk to public health) and the HSE (which monitors well integrity). Another example of duplication is the developer being required to discuss plans to mitigate the risk of groundwater contamination with DECC (during the ERA), the local MPA (again during the ERA), the EA (during the application for a groundwater permit) and the HSE (during its review of the well design).

There have been calls for a single body to regulate onshore development of shale gas and oil but any such reorganisation would only cause more delays in the industry. Instead, the House of Lords Economic Affairs Committee has recommended a more coordinated and responsive approach within the existing framework, with a lead regulator identified by the Government. Duplication of information requests and the consequent delays and costs might also be avoided if the Office of Unconventional Gas and Oil provides a single point for data input for developers.

Conclusion

Continuous calls for the UK Government to simplify regulations and speed up the process for awarding permits do not address the concerns of local communities who remain unconvinced by what they consider a risky technology. In respect of the regulatory regime however, the Government has made tremendous progress by simplifying regulation (where possible) in a way that fosters the UK's emerging shale gas industry while protecting the public. Developers now have the responsibility to seize these opportunities and step up the search for shale.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.