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Shale Oil and Gas, Geothermal Energy…in the UK?

Bhalindra Bath - Renewable Energy SpecialistShale Oil and Gas, Geothermal Energy…in the UK?  Government consultation URN 14D/099 visits the feasibility of these energy forms in the UK, and whether the UK can soon begin projects in these sectors; discussion on the potential rights that a developer could sell to a fund.

General disclaimer: the following constitutes the written view of the author and in no way constitutes actual legal advice or a legal opinion and so no reliance may be placed upon the content hereinafter contained by any reader of this document in any way whatsoever.  In the event that legal advice or opinion is sought, please contact the author of this opinion at the contact details below.  The view below is expressly confined to matters as they stand at 27 June 2014


Why does the UK Government want to look at Shale Oil and Gas or Geothermal Energy?

The UK Government has set up the, “Office of Unconventional Gas and Oil” (“OUGO”) for energy sources such as shale oil and gas, and the “Heat Strategy and Policy Team” for sources of deep heat such as geothermal energy[1].

As North America has been advancing shale oil and gas extraction, so too the UK Government believes that there may well be substantial reserves as per the studies published on the same day as the consultation paper URN 14D/099[2], and that the costs of extraction if reduced due to advances in industry technologies would make this a large source of energy going forwards for the United Kingdom.

The proposals in the paper would apply to all petroleum drilled for extraction, including conventional oil and gas.

British Shale Gas

According to the consultation for extraction of shale gas, the British Geographical Survey studies referred to within the consultation suggest that the Pennine Basin in the north of England has an estimated 1,300 trillion cubic feet of “gas in place” with other areas being the Kimmeridge Clay area of the Weald Basin in Surrey and Sussex, the Oil-Shale Group in the Midland Valley and the Central Belt of Scotland (between Glasgow and Edinburgh).

Deep geothermal (heat use); deep geothermal power

Deep geothermal (direct heat use):

The consultation states that this can be sourced from hot water aquifers that are rock layers containing groundwater at depths of around a mile below the Earth surface where temperatures are high.  Over 60’C, heat can be used for local heat networks or cooling through use of absorption chillers.

Deep geothermal power:

The consultation states that this power can be sourced using Enhanced Geothermal System technologies (EGS) but that the UK may not have the resource potential of more volcanic regions (New Zealand, Indonesia or Iceland) given a report from Atkins for the Government[3], and for this reason, despite the existence of a deep geothermal system in Southampton (which provides a district heating system for warm water from the Wessex Basin Hot Sedimentary Aquifer), the current Government will prioritise heat-only deep geothermal projects, stating that a number of this type of project are already planned under the Renewable Heat Incentive program, through the Heat Networks Delivery Unit with projects planned in North-West and North-East England, and the South-West of England.

 

What would be in the underground drilling “rights” pack for a developer selling shale gas extraction rights/deep heat geothermal system under an SPA/Asset Purchase Agreement?

 

(1)     Licence to drill

DECC can issue a licence for onshore oil and gas.  Geothermal extraction doesn’t have an equivalent system but in the case of geothermal heat schemes a Groundwater Investigation Consent (GIC) and an abstraction licence may be required from the Environment Agency.

(2)     Landowner consent

The legal principle of cuius est solum, eius est usque ad coelom et ad inferos[4], whereby the owner of the freehold title to land in England and Wales owned everything on the surface of their land, the airspace above it, down the centre of the Earth, has been somewhat modified in scope since Bernstein of Leigh (Baron) v Skyviews and General Ltd [1977] 3 WLR 136 which limited the scope of this principle to the extent to which the landowner requires to reasonably enjoy its subjects on the ground, which presumably extends in the opposite direction below the surface, such that the landowner will have rights on the strata below its land to the extent that it reasonably requires control to enjoy its subjects.  In 2010, in the Bocardo SA case (Mohammed Al Fayed’s company claiming compensation for drilling and extraction of oil from beneath his estate in Surrey), their Lordships decided that, “…the owner of the surface is the owner of the strata beneath it, including the minerals that are to be found there, unless there has been an alienation of them by a conveyance, at common law or by statute to someone else..“, with the final extent being to, “…the point at which physical features such as pressure and temperature render the concept of the strata belonging to anybody so absurd as to be not worth arguing about..“[5].  In the event that a form of consent cannot be obtained due to defect in title, or unreasonable terms offered by a landowner for provision of their consent, compulsory rights may be acquired by court order under s.3(2) of the Mines (Working Facilities and Support) Act 1966[6].

(3)     Planning permission

As with most energy developments in the United Kingdom that may have an impact on the local community a pre-planning consultation will be required to assess feasibility, and an Environmental Impact Assessment may well be required by the local authority as a part of the public consultation process.  The UK Onshore Operators Group which supports the shale gas industry in the United Kingdom would be worth contacting in this regard.

(4)     Environmental regulator permit

Once an application for an environmental permit is submitted, the relevant environmental regulator such as the Environment Agency will publish the permit application on its website for public comment, before issuing its permit[7].

(5)     Well plans require examination by the UK Health and Safety Executive (HSE)

An HSE inspector and a third party well examiner will check the design and construction of the intended well to check for compliance with the well’s design, leaks, and maintenance.

(6)     Drilling/Production consent

For wells relating to proposed hydraulic fracking, DECC will consider seismic risk, the planning permission, the HSE report and EA permit, (3)-(5) above, and then will give its consent.  For geothermal heating schemes, the final consent and seismic hazard consent will be administered through the local planning department in the local authority to the site of the proposed geothermal project.

 

Risks

(a)     Water contamination

The consultation states that the Royal Society and Royal Academy of Engineering view the risk of water contamination due to hydraulic fracturing as being low if the well is designed, well[8].   In relation to deep geothermal EGS projects, as the water is extracted in situ, and no waste water produced, the risk of contamination into strata below the ground-surface higher up from the point at which the aquifer where the geothermal deep heat project is located is viewed in the consultation as minimal.

(b)     Seismic activity

Shale operators will have to monitor the proximity of relevant faults before fracking, monitor seismic activity during and after a frack, and halt operations if seismic activity breaches acceptable parameters.  In terms of deep geothermal the risk is thought according to the consultation, to be minimal.

(c)     Subsidence

The consultation points to shale gas or geothermal having low or minimal risk of this.

 

Proposed action by the UK Government

(i)  A right of underground access from land below 300m.  Fracking would take place much deeper than 300m however this is the distance beneath which the Government believe the surface landowner will no longer have any use of land.  This right would negate any claim of trespass from a surface landowner.

(ii) One-off £20,000 payment for each unique lateral (horizontal) well that extends by more than 200m laterally, and if lateral drilling vertically coincides payment is made only once.  The payment is suggested to be made by the operator to a community body which would then distribute the payment amongst the community to ease the administrative burden.

(iii)  Public notification system to allow an individual or community to raise valid objections.

 

Questions raised by the Government for this consultation

1. Should the Government legislate to provide underground access to gas, oil and geothermal developers below 300 metres?
2. If you do not believe the Government should legislate for underground access, do you have a preferred alternative solution?
3. Should a payment and notification for access be administered through the voluntary scheme proposed by industry?

 

Operators, developers, funds, contractors, individuals and community bodies can engage MBC Energy Team to assist on responses to DECC on the consultation and the questions above by 11.45pm on 15 August 2014.

Written by Bhalindra Bath – My Business Counsel Energy Specialist. London, 27 June 2014.

To find out more on how My Business Counsel can assist you, please contact our Energy Team today on info@mybusinesscounsel.com or by calling +44 (0) 203 507 0152.



[1] Consultation on Proposal for Underground Access for the Extraction of Gas, Oil or Geothermal Energy, URN 14D/099, published by the Department for Environment and Climate Change (“DECC”) on 23 May 2014: https://econsultation.decc.gov.uk/decc-policy/consultation-on-underground-drilling-access (at page 3)

[5] Star Energy Weald Basin Limited & Anor v Bocardo SA [2010] UKSC 35 (http://www.supremecourt.uk/decided-cases/docs/UKSC_2009_0032_Judgment.pdf)