Legal obstacles to UK replicating U.S. shale boom

Lady Justice
Source: DollarPhotoClub

The current state of the UK regulatory regime is a serious obstacle to replicating the shale-related economic success enjoyed by the United States – according to Robert Griffiths, QC, Joint Head of Chambers, 4-5 Gray’s Inn Square.

Speaking at the Westminster Forum Project’s shale event on Tuesday, Mr Griffiths listed the laws governing the exploration of hydrocarbons in the United Kingdom; the most important being The Petroleum Act of 1934, which states that the subterranean mineral rights in the UK belong to the Crown. This is why shale operators need to apply for licenses from the government.

In the U.S. – where mineral rights belong to the landowners – the landowners have a financial incentive not to oppose drilling on their land. In Britain, the landowners – as they are not going to benefit from exploration on their land – can only see exploration activities in a negative context of it being an eye-sore, a nuisance, or, worse, something that will adversely affect their property prices.

At present, in the event of a landowner opposing exploration activities on their land, the operator’s only recourse is to acquire the land under the rarely-used Mines Working Facilities and Support Act of 1966. This is a cumbersome solution and unlikely to satisfy either of the parties. The compensation the landowner gets under the Mining Act is minimal as the stance taken by the courts is “when it’s so far down, how can you possibly have suffered any loss?” The operators, on the other hand, have to go through the process of acquiring access rights individually for every landowner under whose properties they are planning to drill.

This is an example of the legal structure falling far behind technological advancement. Back in the 1930s, the only drilling was vertical. The 1934 Petroleum Act does not fit the reality of shale exploration which brings with it the necessity of running horizontal wells – usually several from a single pad and running for several miles and in many different directions.

“Where you’re horizontally drilling,” Mr Griffiths explained, “where there are multiple land ownership issues then, in practical terms, makes it quite impossible to for the operator to reach agreement with the owners along the track of horizontal drilling.”

The much-debated Infrastructure Act of 2015, which went on the Statute Book on the 12th February this year, was to simplify this process but so far, Section 50 of that act, which deals with associated hydraulic fracturing has not yet come into effect.

“And then again there is an interesting omission;” Mr Griffiths said, “fracking has only been carried out on one occasion in this country and the new legislation which was intended to provide a bespoke regulatory regime for fracking has not yet been enacted.”

The inadequacies of the legal system are further exacerbated by the amount of red tape accompanying shale exploration in the UK. The currently-debated application for hydraulic fracturing in Lancashire has over 800 pages. A document which – in Mr Griffith’s estimation – would take a skilled, specialist advocate at least a week to read, and more to analyse.

What is more, for an operator wishing to commence shale drilling in the UK, the number of agencies that need to be consulted or where consent or permission is necessary, at the moment amounts to fourteen separate bodies. Some of these would have to give their consent, other would have to be consulted, yet other would have to be notified of any intended drilling.

“As to the absence of a bespoke planning, or regulatory, regime, the system lacks coordination – it’s unnecessarily complicated and there are responsibilities shared between various government departments and agencies,” Mr Griffiths said, concluding that “if we are desirous of exploiting shale gas then we should have a much better streamlined regime in order to achieve – even if only in part – the economic success that is being enjoyed by the United States over the last 10 years. And we don’t want this to be a wasted opportunity.”

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