Briefing: Streamlined procedure sought to reach underground energy

Ministers are proposing to simplify the process for energy companies tapping subterranean resources, Catherine Howard reports.

A shale gas fracking rig in the US
A shale gas fracking rig in the US

Q: What are the current procedures for gaining underground access to oil, gas or geothermal energy sources?

A: Oil and gas in the UK is owned by the Crown. Licences to extract it are granted by the Department of Energy and Climate Change (DECC). However, in addition to a DECC licence, companies must obtain the consent of all landowners through whose land they need to drill to reach the resource. In Star Energy v Bocardo [2010], the Supreme Court confirmed that failure to do so would constitute a trespass.

Currently, if a company cannot reach agreement with all necessary landowners, it may apply to the secretary of state and, with his permission, to the courts for a grant of access rights through the Mines (Working Facilities and Support) Act 1966. There is no equivalent procedure through which geothermal companies can seek rights to use underground land without landowner consent.

Q: What are the government's proposals for changing the law on underground extraction?

A: On 23 May, the Department for Communities and Local Government (DCLG) announced a 12-week consultation on proposals to grant an automatic statutory right of access to companies extracting oil, gas or naturally occurring heat. The right would only apply at depths below 300 metres and would not obviate the need for other consents, such as planning permission and environmental permits.

Q: What problems with the current law has led the government to take this action?

A: The only reported case of the 1966 act procedure being used by a petroleum company is BP Petroleum Developments v Ryder [1987]. In that case, it took BP two years to secure access rights in respect of a single landowner.

When the existing legislation was originally enacted, onshore oil and gas was only extracted through vertical drilling, meaning that companies would usually only need the consent of a single landowner only. Nowadays, however, oil and gas is often extracted via lateral drilling.

The proposed change is seen as necessary not only to assist development of the shale gas industry, but also to enable the law to catch up with the way in which conventional oil and gas is extracted.

It is equally significant for the geothermal industry. Geothermal projects will often be located in densely populated areas, meaning that the refusal of even one landowner could prevent a project from going ahead.

Q: Is there a precedent for the provision of a statutory right of access for resource extraction?

A: Section 51 of the Coal Industry Act 1994 provides an automatic statutory right of access to underground land to companies licensed by the Coal Authority to extract coal. Like coal, shale gas and geothermal development may require the use of large areas of underground land in hundreds or even thousands of separate ownerships.

Q: What payment is proposed in return for the right of access and how does this compare with existing payments?

A: Only nominal compensation of around £50 is likely to be awarded to any landowner by the courts under the 1966 act procedure. This follows the judgement in Bocardo that underground land at the kind of depths involved in petroleum extraction has no value and that landowners will not be affected "one iota" by such operations.

Under the DCLG's consultation proposals, the petroleum and geothermal industries would put in place a voluntary payment scheme providing local communities with £20,000 for each lateral well extending more than 200 metres. If more than one lateral well is drilled in the same vertical plane, only one payment would be made. The industry is also expected to propose a non-statutory public notification system identifying the relevant area of underground land. The DCLG says it would prefer payments to be made to a "relevant community body", rather than being split between individual landowners.

To guard against any future retraction of the voluntary scheme by industry, the government will have powers to establish a statutory scheme through secondary legislation.

Catherine Howard is a senior associate at law firm Herbert Smith Freehills LLP


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