One more step towards UK shale

Government provides underground drilling access for developers

Darren Spalding, Olga Galin and Adam Waszkiewicz, Bracewell & Giuliani, London

In June, Bracewell & Giuliani reported on the opening of the UK Government’s public consultation concerning its proposal for changes to the laws concerning underground drilling access in connection with projects involving shale drilling and fracking, as well as geothermal energy extraction.

The existing UK legal framework dictates that mineral rights to petroleum belong to the Crown, with the Government issuing licenses to operators to permit them to exploit those petroleum rights. However, subject to those mineral rights in favor of the Crown, owners of freehold land have rights over their land both at surface level and down to the center of the earth. This means that after receiving a license from the Government, an operator must also obtain the landowner’s permission in order to have access to and operate under privately owned land. If an operator fails to obtain such permission it will be committing a trespass. Operators must therefore negotiate with individual landowners to secure underground access (usually in return for a payment). These negotiations can be protracted and there is currently no standardized approach.

The Government’s public consultation proposed underground access legislation, pursuant to which:

(i) operators would be permitted to drill below private land without first having to negotiate access rights, provided such drilling would be at depths of at least 300 meters. Operators would still need to obtain any necessary consent to commence drilling but the right of access would not be dependent on landowner permission, thereby removing the issues relating to the law of trespass;

(ii) operators would make a voluntary payment to the relevant local community body in return for the automatic right of access, and the Government would retain the right to enforce payment through regulation if the proposed voluntary scheme was not followed; and

(iii) a voluntary notification system would be introduced to enable operators to notify the public, in particular the affected communities, of details of the relevant areas of underground land that would be accessed by drilling and the payments made in return for such access.

The public consultation was open from May 23 to August 15, 2014 and received over 40,000 responses with 99% of respondents being opposed the proposed legislative amendments. The Government has indicated that 90% of the total responses received did not respond to the specific consultation questions but instead used the consultation to voice objections to fracking and shale gas operations (with nearly 29,000 of these responses submitting a template anti-fracking campaign text).

With respect to the responses received from “stakeholder organizations” (being respondents with national or regional presence, representative bodies, public sector bodies, locally elected bodies and bodies operating in relevant sectors including oil and gas, energy and law), 55% supported the proposed underground access legislation and 24% opposed to the changes. The full break-down, by respondent, of the responses received to the consultation question of “should the Government legislate to provide underground access to gas, oil and geothermal developers below 300 metres?” is set out below:

Source: Government Response to the Consultation on Proposal for Underground Access for the Extraction of Gas, Oil or Geothermal Energy, 25 September 2014

In the face of the significantly negative feedback, the Government has replied that it recognizes “that there is opposition to hydraulic fracturing and the use of fossil fuels in general. The consultation was not intended to address this wider issue, and focused specifically on underground access”. The Government concluded that “Having carefully considered the consultation responses, we believe that the proposed policy remains the right approach to underground access and that no issues have been identified that would mean that our overall policy approach is not the best available solution”.

As was announced in the Queen’s Speech earlier this year (which presents the Government’s legislative agenda for the year ahead), the Government has already proposed draft legislation in the Infrastructure Bill to enable the proposals set out in the consultation to become law. Following conclusion of this consultation, the Government has announced that it will “put before Parliament primary legislation to implement the policy proposals set out in the consultation paper”.

The Government’s consultation evidences that the issue of hydraulic fracking continues to polarize public opinion and that the anti-fracking campaign remains highly active. Nonetheless, the Government’s response to this consultation shows that it remains committed to the development of the UK’s indigenous shale resources. Coming shortly after the “No” vote in the Scottish referendum, this development will further enhance certainty for the UK oil and gas industry and its key project developers and investors.

About the authors
Darren Spalding Based in Bracewell & Giuliani LLP's London office, Darren Spalding is a corporate partner dedicated to the energy sector. He advises clients on upstream, midstream and downstream oil and gas M&A transactions, with a particular emphasis on cross-border deals, having advised on transactions involving assets in more than 30 jurisdictions. Spalding also has experience in relation to commercial arrangements relating to the oil and gas industry, including production sharing contracts, joint operating agreements, sales and transportation arrangements and joint venture issues.

Olga Galin Olga Galin is an associate in the firm’s London office. She is a corporate lawyer in the energy and natural resources sector, advising clients on energy-related transactions, including mergers and acquisitions, joint ventures and project development.

Adam Waszkiewicz Adam Waszkiewicz is an attorney in the London office of Bracewell & Giuliani LLP where he focuses his practice on corporate matters within the energy sector including cross-border transactions. He has experience in M&A, equity capital markets, joint ventures, redomiciliations, corporate reorganizations and project finance.

 

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