Unconventionals UK: The Rules of the Game

What would unconventional gas explorers do without someone local on the ground who is well aware of the application process, the permissions needed and the regulations guiding their activity? If you're looking to get into this brand new industry in the UK, a firm like Bond Dickinson LLP could be the navigator you're looking for.

Kevin Gibbs, Partner, Renewables and Power, Planning and Infrastructure (along with Energy and Natural Resources Partner Uisdean Vass), will be giving a presentation at the Unconventional Gas Aberdeen 2014 conference, 26-27 March, on the planning and property points to consider for shale gas developments.

Bond-Dickinson is a UK-based law firm with offices in Scotland and England one of whose strengths lies in serving the oil and gas industry. Mr. Gibbs is a partner in the planning and infrastructure team comprised of five partners and 25 lawyers. “Most of what we do is work on consenting major infrastructure projects,” he explains. “At the moment we're advising on four offshore wind farms for clients like Scottish Power, E.ON and a number of the main power generators. We obtain the consents for that type of development as well as all of the property interests for cables and substations, etc.”

Other large infrastructure for which Bond Dickinson is involved in the planning includes gas storage, gas turbine generating stations, energy from waste facilities, roads, railways, or urban regeneration projects.

“That, combined with the oil and gas industry, with things like shale – we've already advised Centrica on a subterranean gas storage scheme a few years ago, and have been involved in all sorts of minerals-type work. We have expertise in coal and other sorts of extraction. We've brought all that together for a form of development which is relatively new – and that is, drilling for unconventional petroleum,” he explains. “We know our way around both the national legislation as well as the European legislation to advise newcomers, and existing businesses, on the regulatory environment that they'll be facing.”

In preview of the conference in Aberdeen, Mr. Gibbs offered his insights to Natural Gas Europe.

In terms of planning, what kinds of general considerations should unconventional gas explorers take?

I always say you've got to have a really robust strategy for shale gas. If you've read the literature of the last few years there has been an awful lot of controversy associated with some of the exploratory rigs that have been put in place, both up in Lancashire and in Sussex. I think in terms of how you go about managing any new development, that's really got to inform your views.

There are a number of environmental groups and respected organizations like the National Trust that have produced reports and comments, and the biggest concern out there is in terms of the potential impact on water aquifers, both from having to bore through aquifers, or seepage coming up as well as on water usage. Potential seismic activity and a range of potential ecological impacts are also of concern to the public. The jury's out on all these things in the UK – most of the studies have been done in the US, which has got a completely different regulatory environment.

So there are a number of hurdles to get through: the local minerals planning authority has to give planning consent. They will be looking very carefully at the environmental considerations, traffic, any sort of piping that's needed, water reserves because you need an awful lot of water at high pressure to be able to fracture the shale. Then you've got the Environment Agency, Department of Environment and Climate Change (DECC), the Health and Safety Executive...

So there are a number of organizations that all have to provide consent, but the core of it is really making sure that the environmental issues are properly covered off. The ones that most people think about are water contamination and use of water. But there are also issues like visual intrusion and traffic impacts. Are you going to pipe out your gas? Is it going to be taken out by vehicles? There's also noise, dust, and air quality to consider and all the ecological impacts.

There's not a single application that one would need to cover all these things and the Government has produced guidance in terms of what the various regulators need to consider. Back in December it produced what's called a draft Strategic Environmental Assessment, looking at the potential number of well pads across the country and the impact on the environment, at a broad scale. But the proof in the pudding is actually in the applications for planning and other consents, and that's after you get your petroleum licence – in the UK, all petroleum, oil, gas, etc. are effectively nationalized, the Crown owns all those reserves, so you need to make an application for a license and that's what's called a Petroleum Exploration and Development Licence. The Government has various rounds of going out to the market for applicants to come and get a licence, but all that gives you is the exclusive rights in a particularly defined area to explore, appraise and produce if you can. It doesn't give you any consent to actually go and do anything – you've still got to go through all the regulators, and it doesn't give you the property rights to explore. You've got those things to do first before you can get the first operational development going.

How sticky is the question of landowner permission for gas drillers in the UK?

I always say to my trainees that you can't undertake any development unless you've got the land right to do it. That comes first really, because you need to have those rights. The petroleum licence gives you absolutely no property right whatsoever, so you need acquire, what you can, both the surface to get access to roads, to get access to piping tracks if you're going to bring material in or take it out by piping. So that's the surface - then the subsurface. Provided you're able to purchase the surface land together with all the sub surface rights, you can then drill through your own land vertically, with the exception of going through a coal seam for which you need consent from the Coal Authority.

But as long as you've got all the planning consents and the regulatory consents you can go vertically, but the issue that crops up is when you go horizontally – you're down a kilometer or two and they put in the new drill bits that can directionally drill to find the shale seam and you're going horizontally perhaps for a kilometre.

Now when you go outside of your land, the law in the UK from a case a few years ago called “Bocardo” is that you're effectively trespassing on your neighbor's land. You need to obtain consent from a variety of landowners if you will be disturbing the shale under their land.

There's been an awful lot of debate and landowners for whatever reason saying to DECC and others, 'we're not going to give consent' because they don't believe the whole industry is something they want to be part of, so that leaves the operator in a bit of a sticky position having the vertical drill land but not being able drill horizontally. There is legislation that does entitle mineral developers to effectively go to court to get an order to acquire interests in land. It's a dated piece of legislation, dating back to 1966, where you have to define where you want to go and then make an application first to DECC to say you've tried as best you can to obtain the rights to access from the landowner, but there's been no way that there's going to be any sort of voluntary acquisition.

If you do get past the Government application, the High Court has hearings on what the attempts have been to purchase the land, what the compensation offered is and what sort of right you are seeking in that person's land. It's a very tortuous procedure at the moment for an operator to try to acquire the right compulsorily, and that's something that the Government is certainly looking at.

If you look at utilities like water or electricity, companies that are regulated, have a variety of rights to enter onto land and undertake works and pay compensation. The question is, should this new, sort of embryonic industry be given similar rights? The Government is looking at that at the moment and has other options it can consider, from simply paying compensation to having objections from landowners about the principle of the development as well as compensation. So that's all in the ether, something for the future, but certainly something that the Government has said it will be looking at.

I don't know what their preferred route would be. They might just tinker with existing legislation for instance, provide guidelines, because at the moment it's not straightforward how you go about demonstrating that you've used reasonable efforts to acquire the land voluntarily. So that's something in which I think we'll have more certainty later on this year.

Is there anything particularly attractive or enticing about UK legislation for hydrocarbons producers compared to other places?

From what I see, there are certain countries like France where there's a moratorium – we're certainly not there. The Government has said 'we want this industry to provide some of our energy needs', a welcome with open arms so to speak. They've set up a unit within the DECC specifically to look at ways of streamlining systems to make it more attractive, they're looking at changing the rating system whereby the rate that you have for any business for local taxation, normally that local taxation is collected by the authority and paid to the Government to be redistributed. What they're looking at doing is potentially having all the money that is raised from the shale gas development actually staying in the area.

The industry is offering a variety of community benefits, where on the basis of one of these organizations like the UK Onshore Operators Group are saying that their members should pay into various trusts locally for each well and potentially have some royalty or some mechanism where the community benefits from the turnover or the profit made from that particular development is paid to the community. None of this has happened yet – these are all proposals that are purely voluntary. The Government and the industry are trying their best to make it an attractive proposition in the UK. I think at the end of the day, it will get there and be more streamlined but there will be these hurdles.

Drew Leifheit is Natural Gas Europe's New Media Specialist.