UK: Fracking – Here To Stay?

Never a day seems to go by without there being some mention in the press of fracking (or otherwise known as hydraulic fracturing for shale gas).

What is clear is that the Government needs to identify alternative energy solutions and to get into a position where such solutions can be exploited – both for use by consumers and businesses alike. Conventional oil and gas supplies are running out (even if the precise levels are difficult to clarify) and energy prices remain high within the UK notwithstanding the recent falls in the wholesale price of oil and gas (although there has been some recent movement downwards in energy prices following on from the Government's announcement earlier this year that it is investigating why the cost of household energy has not reflected the reductions in the price of the wholesale market).

That then brings us to fracking. Fracking has had a significant impact on the energy market in the USA and supporters of fracking generally anticipate a similar effect if it receives widespread adoption here.

However, from a practical perspective, there remain significant problems for the exploitation of this potential energy source.

The Legal Position

The current legislative framework governing the extraction of onshore oil and gas is comprised in the Petroleum Act 1998 ("the 1998 Act") and the Mines (Working Facilities and Support) Act 1966 ("the 1966 Act").

The 1998 Act provides that all petroleum found beneath the ground in Great Britain or under the territorial sea adjacent to the UK is owned by the Crown. Section 1 of the 1998 Act provides that the meaning of "petroleum" will include shale gas.

However, whilst the gas itself belongs to the Crown, in order to get at it, energy companies will need to access land beneath properties owned by landowners up and down the Country.

As far as England and Wales is concerned at least, the general position is that landowners own not only their land and buildings but also the airspace above and the ground below. This includes the sub-strata surrounding the shale gas, as has been confirmed by the Court of Appeal in the case of Star Energy UK Onshore Limited & Another v Bocardo SA [2009] ECWA Civ 579 ("Star Energy"), where the Court held that the registered freehold proprietor of the surface of the land would also be the owner of the strata beneath the land, including the minerals, in the absence of evidence of either express or implied alienation of the strata to someone else. That decision was upheld on appeal by the Supreme Court.

Sections 3 and 4 of the 1998 Act provide that the Secretary of State (on behalf of the Crown) has the power to grant licences to bore for shale gas in Great Britain. The award of licences is discretionary and they are generally issued over large areas granting exclusivity to operators in particular locations. The grant of the licence may be in exchange for royalty payments, and the Crown will receive a royalty for any gas (or indeed oil) extracted.

However, whilst the grant of a licence to the petroleum licence holder by the Secretary of State entitles the licensee to "search and bore for" petroleum or gas, it does not entitle a licensee to access a property without the landowner's consent to search for and/or extract shale gas.

In order to obtain the additional rights which the licence holder will need in this respect, the licence holder must first seek to negotiate with the landowner on a private treaty basis in order to secure any additional rights required (the negotiations could, for example, include a payment to the landowner for any inconvenience).

Compulsory Acquisition of Rights

In default of agreement being reached, the licence holder then has no option than to rely on the compulsory purchase scheme prescribed by the 1998 Act. This enables the licence holder (under section 7 of the 1998 Act) to apply for the compulsory acquisition of ancillary rights and easements required, including a right to enter onto land and sink boreholes in the land, erect buildings on the land and/or to lay pipes on the land.

An application by a licence holder for the acquisition of ancillary rights is however subject to section 3 of the 1966 Act, which sets out limitations on the grant of ancillary rights, namely the grant of the right must be expedient in the national interest and ancillary rights can only be granted where the applicant can show that it has not been possible to obtain the rights by private arrangement (for example because the person with the power to grant the right has refused to grant it or demands that the rights be granted on terms which are not reasonable).

If rights are granted by the Court, it will be on terms which should include payment by the licence holder of "fair and reasonable" compensation in a sum to be determined by the Court.

This is however a very expensive and time consuming route to obtaining the necessary approvals and is seen as being prohibitive to the exploration and potential exploitation of the UK's shale gas reserves (the UK is said to import around 80% of its gas whereas it is estimated that around 10-15% of the UK's shale gas reserves would be sufficient to meet the gas needs of the UK for more than 40 years).

The Future?

It is in no small part down to that issue that the Government have proposed the Infrastructure Bill and who, at the time of proposing the Bill, stated:

"The bill would simplify procedures by which the onshore oil and gas and deep geothermal industries obtain underground drilling access 300 metres or more below the surface. Existing procedures for underground drilling access are costly and disproportionate for new methods of lateral drilling. There are no proposed changes to surface access or the regulatory system which deals with the potential risks associated with drilling and hydraulic fracturing. A company looking to develop shale or geothermal would still need to obtain all the necessary permissions, like planning and environmental permits, and industry has committed to engage with communities at each stage".

The proposals originally advanced by the Bill were wide reaching and would have had a fundamental impact on the rights of landowners to oppose the exploration for and exploitation of shale gas by fracking.

Those proposals have however been subject to intense debate within the Government (although the fundamental aspects of the original proposals remain) and, most recently, at the Third Reading of the Bill before the House of Commons, a number of conditions were attached to the proposed legislation including (although not exclusively) the following:

• That fracking cannot take place without there first having been carried out an environmental impact assessment, there having been independent inspections as to the integrity of the wells used, unless monitoring has been undertaken on the site over the previous 12 month period and unless site-by-site measurement, monitoring and public disclosure of existing and future fugitive emissions is carried out;
• That fracking cannot be carried out at all in land which is located within the boundary of a groundwater source protection zone, within or under protected areas (including national parks – such as the South Downs for example) or in deep-level areas of depths of less than 1,000 metres; and
• That, before fracking can take place, the relevant planning authorities must have considered the cumulative impact of fracking activities in the local area, the companies engaged in the extraction of gas and oil rock must be bound to provide community benefit schemes and the residents in the affected area must be notified on an individual basis.

As matters stand, these conditions have not been accepted in their current form by the House of Lords (where the Bill was proposed) although the principles have largely been agreed. These items will continue to be negotiated between the two Houses with a view to approval being reached and the Bill then being passed for Royal Assent.

It seems likely then that fracking will become easier, cheaper and will therefore be with us to stay provided that nothing arises in the coming months that derails the passing into law of the Infrastructure Bill.

One such issue that could have that derailing effect is the increased volume of parties demanding a wholesale moratorium on fracking pending the carrying out of further tests into its safety and environmental impact.

Whilst that proposal was comprehensively outvoted at the Third Reading of the Bill (by 308 votes to 52), on a regional basis at least one energy company has hit opposition to its proposals.

In this context, a report by Lancashire County Council opposed the grant of permission to Cuadrilla to explore sites at Little Plumpton and Roseacre Wood for shale gas. The decision from the planning authority is awaited.

Further, the Scottish Government has introduced a moratorium on fracking meaning that no planning permission for fracking schemes will be approved pending the result of a series of Scottish Government backed investigations designed to assess the impact of fracking. The Scottish Government has also stated its intention to carry out a public consultation so as to gauge Scottish public opinion on fracking.

This moratorium itself follows a report from the Westminster-based cross-party Environmental Audit Committee (which was released shortly before the Third Reading of the Bill). That report, amongst other things and in very strong terms, also proposed a moratorium and recommended a number of changes to the Bill (which, in the main, are the changes now being discussed by the two Houses).

There is, however, currently no such moratorium in place in England and Wales and there are a number of sites in the South East corridor generally that could be considered ripe for this this sort of exploration activity.

We must now wait and see what happens over the coming weeks in the run up to the General Election; it would be particularly telling if the Bill were to obtain Royal Assent prior to Parliament rising at the end of March.

What we do know for certain, however, is that the debate will continue – at least until such time as the question of a new legislative mechanism for fracking has been resolved once and for all. 

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