Tom Williams
Posted on 17 Jan 2017

There and frack again – fracking and the rights of landowners

Hydraulic fracturing or ‘fracking’, as it is more colloquially known, has long been heralded as a potential, yet divisive, solution to UK energy security. With the Government’s cuts to clean energy subsidies having an injurious effect on the renewable energy sector, the direction now seems to be shifting towards generation of electricity from the UK’s natural gas resources. In this overview, we examine the extensive regulatory framework governing fracking in the UK and its impact on landowners.

Introduction

On 6 April 2016, Section 50 of the Infrastructure Act 2015 came into force. It introduced amendments to the Petroleum Act 1998 concerning when and how the Secretary of State (the ‘Secretary’) can issue a ‘well consent’ and a ‘hydraulic fracturing consent’ to facilitate the exploration and subsequent production of shale gas from fracking. In short, a well consent concerns the proposed location of the fracking operations. A hydraulic fracturing consent relates to the actual fracking operation itself, including drilling and is the final check before an operator can implement its planning permission. These consents are subject to substantial regulation and are only two of the numerous consents required for a fracking operation to actually get off the ground or, more accurately, under it.

It should be noted that prior to satisfying conditions in relation to these consents, a Petroleum Exploration and Development Licence, the landowner’s consent and planning permission are needed for the drilling of wells for both exploration and production purposes, as well as the development of a fracking site. Planning permission will only be granted with the most rigorous of conditions attached. Further, the Environment Agency ensures that any shale gas operations are conducted in a way that protects people and the environment.

Many of the concerns relating to fracking have their provenance in contentions that fracking carries serious risk to people’s health, seismicity, purity of local water supplies and to the local environment, as well as potentially adversely impacting the right of landowners and causing an inadvertent industrialisation of the countryside. Of course, these concerns are only amplified by the media attention that surrounds fracking and the strong views on both sides of the energy debate.

It should also be noted that in April 2016, the Onshore Hydraulic Fracturing (Protected Areas) Regulations 2016 came into force as well. These regulations ensure that fracking only takes place below a certain depth in specified groundwater areas, National Parks, Areas of Outstanding Natural Beauty and World Heritage Sites.

Which areas are likely to be affected by fracking?

Productive shale in the UK is specific to various regions. In South East England the primary area of productive shale is situated in the Weald Basin. In Northern England, the area known as Bowland Basin is thought to contain the largest shale gas reserves. The British Geological Survey have estimated that the total volume of gas in the Bowland Basin shale is some 1300 trillion cubic feet. The Midland Valley in Scotland is also considered to be rich in shale gas reserves.

From a policy perspective, as it stands, England is the only member of the UK to open its doors to fracking. Currently, Wales, Scotland and Northern Ireland have implemented moratoriums or imposed far more stringent conditions, which limit an operator’s practical ability to commence fracking.

How does fracking impact on a landowner’s rights?

Announcing the Government’s consultation proposals concerning fracking in 2014, the then Energy Minister, Michael Fallon, said: “Britain needs more home-grown energy”. He added: “These proposals allow shale and geothermal development while offering a fair deal for communities in return for underground access at depths so deep they will have no negative impact on landowners.”

Access

The horizontal nature of shale gas exploration means that whilst the vertical well-head may be in one location, the actual fracturing of the shale rock may occur some distance from that location. Inevitably, this leads to the pipelines passing through land owned by others, albeit often at a depth of a few kilometres beneath the surface.

The general rule at common law, with regards to land ownership, is that the person who owns the surface of a piece of land also owns the strata that exists beneath the surface. This is unless the rights have been sold separately from the land. However, by virtue of the Petroleum Act 1998, petroleum rights, including deposits of natural gas belong to the Crown. Operators are required to obtain a licence from the Government to search for and produce oil and gas. This is in contrast to the US, where landowners own sub-surface mineral rights. Operators in the US are required to gain permission from the landowner to conduct fracking operations under their land. However, the rapid spread of fracking in the US would suggest that landowner opposition to fracking operations has been minimal.

In the 2010 Supreme Court case of Star Energy Basin Ltd v Bocardo [2010] UKSC 35, it was held that an operator of a fracking project would be committing trespass unless he had received permission from the landowner to drill underneath their land. Bocardo’s claim for damages arose from the fact that Star Energy had, without Bocardo’s knowledge or consent, drilled a well from their own land through Bocardo’s land to access an oil deposit under Bocardo’s estate in Surrey. Despite the fact that the event giving rise to a claim of damages was trespass, the measure of damages was not decided within the common law of trespass. It was the view of the Supreme Court that compensation in such circumstances should only be nominal. The damages awarded were only £1,000 due to the trespass having no tangible effect on the landowner’s enjoyment of the land, as it had occurred 2 or 3 kilometres beneath the surface. The damages centered around what the Court assessed as proper compensation to be paid by Star Energy, to secure its right to install deviated wells and pipelines under Bocardo’s land, the only real hurdle to which was securing the necessary licence to search, bore for and extract petroleum.

Accordingly, prior to the enactment of the Infrastructure Act 2015, the law required a fracking operator to acquire the landowner’s permission to drill under their land and was required to compensate the landowner accordingly. This mirrored the position in the US. If the operator was refused such permission by the landowner, the operator had to apply to gain rights pursuant to the Mines (Working Facilities and Support) Act 1966. If an application was necessary under the 1966 Act, the operator would have to show that they had been unable to obtain the rights by negotiation, because the landowners had unreasonably refused to grant them, or there was a practical reason why they could not secure them, such as being unable to identify the individuals concerned. Their claim would be assessed by the High Court, who would also determine the amount of compensation payable.

Section 43 of the Infrastructure Act 2015 provides that there is now a right to drill for oil or gas at a depth of at least 300m below the surface. This effectively removes the need to gain consent from the landowner to access land at a depth below 300 metres. The requirement to acquire the consent of the landowner to access land at the surface and down to a depth of 300 metres remains and the landowner would require due compensation.

For a landowner, the issue of access must be duly considered where the requisite consents and licences have been granted to a fracking operator. If necessary these should be separately negotiated. This will include such factors as the nature, extent and duration of that access, as well a payment in respect of that access being granted.

Payment

Sections 45 to 47 of the Infrastructure Act 2015 gives the Secretary wide ranging powers to make regulations which require fracking operators to make payments and provide notices to landowners and “to other persons for the benefit of areas in which relevant land is situated”, where fracking operations are to take place. As it stands there is no automatic right to compensation for an individual landowner. Voluntary notice and payment schemes already exist, but Sections 45 and 46 provide another means of setting up such schemes, if the existing voluntary schemes prove insufficient.

The initial indications were that communities affected by fracking operations would receive a payment from the operator in return for access. This position has changed since the Prime Minister announced the creation of the Shale Wealth Fund. This is a fund designed to share the proceeds of the fracking revenues with community trusts, local authorities and directly with residents of areas affected by fracking operations.

It also been announced by Jim Ratcliffe, the Chairman of INEOS, that the chemical multinational at the forefront of the UK fracking drive will give 6% of its Shale gas revenues to homeowners, landowners & communities affected by the fracking operations of INEOS, including 4% to landowners directly above the wells. Jim Ratcliffe stated: “This is a game changer for Britain’s Shale gas industry. Giving 6% of revenues to those living above Britain’s shale gas developments means the rewards will be fairly shared”.

These factors combined are designed to ensure the economic benefits from fracking operations are shared with those that are directly affected and that landowners are justly compensated for fracking operations that may adversely affect their enjoyment of their land. This is particularly valuable to landowners where no agreement has been reached with the operator for the payment of compensation, as under the statutory route, only nominal compensation might be available to landowners.

Conclusion

In contrast to the rapid growth of fracking in the US, the stringent regulation in the UK is likely to produce a more measured progression. The regulatory framework is likely to ensure that landowners are kept suitably informed and are fairly compensated when necessary. It is also likely, given the current controversy surrounding fracking, that operators will be quick to ensure that suitable agreements regarding access and compensation are reached with landowners.

Landowners should not be put into a position where they could be held liable for any potential environmental issues derived from fracking operations on their land. The nascent status of fracking in the UK and the contrasting information currently available in the public domain mean that it remains to be seen whether the environmental concerns prove accurate. However, such concerns will no doubt be addressed throughout the course of the planning and permitting process and via a continuing dialogue with landowners and local communities affected by fracking operations.

Given the UK’s current over-reliance on gas imports and the Government’s extant disposition towards renewable energy, it is likely that fracking operations in the UK will grow. Consequently, the balancing act between the UK’s need to produce cost effective energy, the rights of landowners and public opinion will become increasingly visible. The inevitable impact on the UK’s renewable energy sector and the UK’s climate change commitments will also garner considerable scrutiny.

For more information please contact Tom Williams on tom.williams@michelmores.com or 0117 906 9334