Thursday, April 6, 2017

Global Shale Law Compendium: Shale Governance in England

Written by Chloe Marie – Research Fellow

This is the third article in our Global Shale Law Compendium series. The first article highlighted governance actions within the European Union generally while the second article addressed shale governance in France. In this article, we will highlight governance actions taken by the English government to develop policies specific to shale gas development. The governments of Wales, Scotland and Northern Ireland each imposed a temporary ban on any unconventional oil and gas development during the year 2015 with the purpose of carrying out studies to understand the impacts of hydraulic fracturing on the environment; thus, this article will limit its focus to the legal and policy aspects of shale gas development England where planned exploration activities are located.

The United Kingdom has a long history of oil and gas development, beginning with the 1851 discovery of a rich oil field in Scotland and followed later by the 1896 discovery of natural gas resources in England. Hydraulic fracturing in the United Kingdom, however, began in 1973 with fracturing of the Wytch Farm conventional oil field in Eastern Dorset. In a 2012 report, the Royal Society and the Royal Academy of Engineering identified approximately 200 wells that have used hydraulic fracturing technology to enhance recovery of conventional oil and gas resources and coal bed methane.

Concerns relating to the development of shale gas arose shortly after two small-scale earthquakes occurred near the Press Hall well site operated by the UK energy company Cuadrilla Resources Ltd in April and May 2011. Quickly, the government imposed a temporary moratorium in November 2011 due to environmental concerns while commissioning a set of reports to investigate the cause of the seismic events. On December 13, 2012, the Department of Energy & Climate Change lifted the moratorium after the evidence showed that adequate controls over the use of hydraulic fracturing could mitigate potential seismic activities.

The United Kingdom had legislation in place specifically governing onshore conventional oil and gas exploration and production, and the English government considered that it was sufficiently flexible to address shale gas development using hydraulic fracturing. Following the lifting of the ban in December 2012, the English government, however, introduced new measures and controls on hydraulic fracturing addressing safety, and more specifically induced seismicity. Operators now are required to further analyze and control the risks associated with hydraulic fracturing, including monitoring seismic activity through a traffic light system, in which operations will be stopped automatically under certain conditions. The English government also established the Office of Unconventional Gas and Oil (OUGO) in December 2012 with a mission of promoting the safe and responsible exploration and exploitation of shale gas resources while ensuring compliance with regulations and industry best practices.

The current legislation provides that the Oil and Gas Authority (OGA) is responsible for issuing Petroleum Exploration and Development Licenses (PEDLs), which grant operators exclusive rights to explore for and exploit onshore oil and gas resources in the license area. The PEDL, however, does not include any rights-of-access; thus, operators must negotiate access with landowners and secure a lease for the establishment of the well site. In addition, operators must be granted local planning permissions from the Minerals Planning Authority (MPA) as well as environmental permits from the Environment Agency (EA).

For projects involving the use of hydraulic fracturing, operators are obliged to conduct an Environmental Risk Assessment (ERA) identifying all risks associated with hydraulic fracturing through the entire cycle of operations. The industry best practices implemented by the UK Onshore Oil and Gas Industry (UKOOG) encourage operators to voluntarily undertake a pre-application consultation with the local MPA before submitting a complete planning application in order to discuss issues related to noise, ecology, aesthetic, archaeology and site access. Furthermore, the UKOOG requires operators to submit detailed plans for monitoring hydraulic fracturing operations and induced seismicity through traffic light monitoring systems. Operators also should keep records and disclose the chemical additives of fracturing fluids for data purposes.

The local MPA is responsible for determining the potential environmental effects of the project and deciding whether an Environmental Impact Statement (EIS) is required. Additionally, the local MPA must review the initial mineral planning application and ascertain whether the proposed project is an acceptable use of the land. All information submitted in the planning application must be made available for public consultation.

In the meantime, operators must apply for relevant environmental permits from the EA, including mining waste operation, radioactive substances activity, installation, groundwater activity and water discharge activity permits. Here again, the industry best practices suggest that operators undertake a pre-application consultation with the local EA office in order to discuss the likelihood of the proposed project receiving planning permission.

If the local MPA grants planning permission, operators will be subject to pre-commencement subject planning conditions to be formally discharged in order for the Department of Energy and Climate Change (DECC) to grant a drilling permit. In this case, the Health and Safety Executive (HSE) must be notified of the well design and operations plans at least 21 days before the commencement of drilling in order to ensure safety and adequate monitoring of the potential adverse effects of hydraulic fracturing. Simultaneously, operators must inform the British Geological Survey (BGS) of their intentions to drill for record keeping purposes. If the local MPA denies planning permission, operators have the possibility of an appeal through the Planning Inspectorate to the Department for Communities and Local Government’s State Secretary.

The English government also developed measures encouraging investment in onshore oil and gas, including shale gas. In December 2013, the HM Revenue & Customs proposed in Finance Bill 2014 to amend the 2010 Corporation Tax Act introducing a new onshore allowance. According to the proposal, the allowance will remove an amount equal to 75% of capital expenditure incurred by a company from its adjusted ring fence profits, which are subject to the supplementary charge. The finance bill 2014 received royal assent on July 17, 2014. In addition, the industry brought in a whole range of community benefits, and councils are allowed to retain 100% of business rates. In February 2015, the English government adopted the Infrastructure Act which gave operators automatic access to private properties for shale gas development below a depth of 300 meters. Moreover, the Act permits operators to horizontally drill under national parks and other protected areas as long as the well pads are located outside their boundaries.

After Former Prime Minister David Cameron tendered his resignation following the Brexit referendum results, Former Home Secretary Theresa May became Prime Minister on July 13, 2016. According to media reports, PM Theresa May has shown clear support for shale gas development using hydraulic fracturing, although she has not yet commented specifically on this issue.

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