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Clearing the way for UK shale (and deep geothermal) exploitation: Infrastructure Bill Update (1)

A new stage in the UK Government’s campaign to remove potential obstacles in the way of shale gas developments was reached last week following a debate in the House of Lords.  Clauses on access to “deep-level land” for petroleum extraction and deep geothermal energy projects are now part of the Infrastructure Bill currently before Parliament.

Since English law recognises no lower vertical limit to landowners’ rights, the new clauses should prevent landowners from seeking to obstruct projects on the grounds that e.g. the drilling of lateral wells 1km underneath their property would be a trespass against them, or alternatively demanding an exorbitant price for agreeing to such use of “their” land.

The new clauses begin: “A person has the right to use deep-level land in any way for the purposes of exploiting petroleum or deep geothermal energy”.  Land here means “onshore” land, and “deep-level” means at least 300 metres below the surface.  In Scotland, the right so far only applies to geothermal electricity generation projects.

The right of use would include all phases of a shale gas or geothermal project: exploration, development, production and decommissioning.  The clauses refer explicitly to “drilling, boring, fracturing or otherwise altering deep-level land” and “passing any substance through, or putting any substance into, deep-level land or infrastructure installed in deep-level land”.  They also allow developers – as a matter of private law – “to leave deep-level land in a different condition from the condition it was in before an exercise of the right of use (including by leaving any infrastructure or substance in the land)”.

Although existing legislation provided scope for developers to override landowners’ objections to the use of their land to extract petroleum by statutory means, the Government concluded that the procedures involved were too burdensome.  The new clauses were introduced following a consultation which ran from May to August 2014 and was discussed in an earlier post on this Blog.  The consultation met with an overwhelmingly negative response, but largely from respondents opposed to fracking per se on a range of environmental grounds.

The new statutory right of exploitation removes a potentially time-consuming and expensive obstacle to development.  Those opposed to individual developments that involve the use of “deep-level” land will now have to rely on public law licensing, planning and environmental processes, rather than the exercise or enforcement of their private law rights, if they wish to try to stop projects going ahead.

The Bill does not otherwise change the position in relation to rights and liabilities as between developers and landowners.  If developers cause damage or harm during their operations, they are likely to be liable for remediation costs and to pay civil damages to any third parties adversely affected.  Landowners could also potentially incur liability for environmental damage caused by developers using the new right in certain circumstances such as the insolvency of a developer.  This position is likely to continue to focus commercial and other strategies, including possibly the imposition of some form of security for decommissioning / remediation costs as a condition of planning permission.

For more shale-related posts, including commentary on the 14th Onshore Licensing Round, see Dentons’ UK Planning Law Blog.

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Clearing the way for UK shale (and deep geothermal) exploitation: Infrastructure Bill Update (1)

Shale / Geothermal – Compulsory access rights “in the national interest”

The UK Department of Energy and Climate Change (DECC) has published a “Consultation on Proposal for Underground Access for the Extraction of Gas, Oil or Geothermal” (Consultation), which suggests a compulsory land access right below 300 metres.

Whilst such proposal was expected in relation to the UK’s developing shale industry (see our recent article: http://www.globalenergyblog.com/uk-shale-legislation-what-could-and-should-change-from-4-june), it is interesting to see such proposal aligned also to the non-fossil-fuelled geothermal industry.

Geothermal justification

Whilst geothermal technology may appear somewhat esoteric compared to shale these days, DECC notes that, unlike petroleum developments (which have compulsory land access rights for horizontal drilling etc. underground, pursuant to the Mines (Working Facilities and Support) Act 1966, as applied by section 7 of the Petroleum Act 1998 (Petroleum Act)), geothermal projects cannot use the Petroleum Act rights to access private land sub-surface (where a landowner withholds consent), and hence apparently need a new such right. Whilst geothermal power technology is perhaps not popularly associated with horizontal drilling, DECC note that directional drilling is required to locate the best point from which to withdraw water, and for separation of colder water reinjection, not to mention where district heating networks may require horizontal drilling.

Whilst the geothermal energy industry may be encouraged by such regulatory attention (albeit at the cost of a voluntary payment mechanism referred to below), it is worth noting that the geothermal industry does not yet have a licensing system of its own. At present, developers locating “hot spots” may be at risk of competitors also benefitting from such discovery. It will be interesting to see whether the geothermal energy industry is able to build upon such regulatory momentum. It may be noted that a potential geothermal licensing regime is currently under consideration in Scotland (see:  http://www.scotland.gov.uk/Publications/2013/11/2800/6).

Existing land access rights sub-surface

In any event, it is noted in the context of shale (and petroleum extraction more generally, both conventional and unconventional) that Petroleum Act compulsory land access rights already exist, but are untested in the current context and are time-consuming and costly (not to mention issues of having to trace ownership title from potentially numerous landowners). As is pointed out, however, existing land access rights (which require application to the Secretary of State where negotiated access rights are not feasible) need to meet any one of a number of criteria. One of these is where persons unreasonably refuse to grant access or demand unreasonable terms (which of course requires some subjective judgment to be applied, and therefore a route to potential judicial review of decisions made). Another is where the grant of the right is “in the national interest” (which appears more clear cut, once a precedent is established). In the Consultation, DECC makes the assumption that:

“In practice, a court is always likely to grant access because it would be expedient in the national interest …”.

New statutory access rights

Therefore DECC proposes a new statutory right of access to companies extracting petroleum or geothermal energy in land at least 300 metres below the surface (Statutory Access Right). It would not apply to Coal Bed Methane or Underground Coal Gasification development (which already have underground access under the Coal Industry Act 1994). The Statutory Access Right would involve a £20,000 one-off payment (which amount is apparently volunteered by the shale and geothermal industries) for each unique lateral well longer than 200 metres, although: “where lateral drillings vertically coincide payment will be made only once”. This presumably means that a horizontal plane of pipelines at the same depth would only attract one payment.

DECC’s preference is that payment would be made to a relevant community body rather than individual landowners (although it is noted that it may be difficult to ensure that relevant landowners are in fact among those wider beneficiaries of a community payment). To this end, as suggested in our previous articles, Community Interest Companies may be a suitable vehicle for such payments.

DECC would take a reserve power to enforce payment through regulation if such voluntary scheme were not honoured. A public landowner (and presumably community-based) notification system would be established, again based on the same industry voluntary “agreement”.

Whilst such proposals may cause concern amongst those opposed to unconventional developments, they will likely be welcomed by the shale industry in particular, which has requested procedural certainty and speed for sub-surface land access. Speed is clearly crucial, if test drilling is to begin to prove the commercial viability of UK shale production, before investors lose their appetite.

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Shale / Geothermal – Compulsory access rights “in the national interest”