Do UK regulatory changes signal large-scale shale gas exploitation?

The 14th onshore licensing round closes on October 28, 2014 for both conventional and ‘unconventional’ oil and gas exploration, including shale gas. The UK Department of Energy and Climate Change (DECC) expects about 50-150 unconventional licences to be awarded in the round.

There is general consensus across industry and Government that a more streamlined regulatory regime and improved land access rights would facilitate shale gas projects. DECC has recently considered proposed changes regarding land access and sub-surface rights to reduce barriers to shale gas development in the UK.

Petroleum Exploration and Development Licences (PEDLs) allow companies to pursue a range of activities involving energy reserves, including unconventional gas, subject to necessary drilling/development consents and planning permission. Some companies drilling mainly for conventional oil and gas are now drilling deeper than they might have to investigate the shale potential in their licenced areas (“coring” is foreseen in these cases but no fracking is currently involved).

Changes in planning permissions

Proposals for shale gas exploration or extraction (like all other reserves) are subject to approval by the Minerals Planning Authority (MPA) for the area where the reserve is located. Since January 2014, the requirement to notify individual owners and tenants of land where only underground operations will take place has been removed; only those where aboveground work is planned must be served notice.

In addition, although “material considerations” may be allowed in planning permission decisions, the Supreme Court held that issues such as loss of property value, loss of view and opposition to the principle of development are not “material” considerations. The MPA local planning authorities also have greater freedom to act on oil and gas extraction projects than they normally would because the Government excluded these projects from the aegis of the National Planning Policy Framework, the major infrastructure planning regime in the UK.

Proposed land access reforms

In the 2010 landmark Bocardo case^[1], the Supreme Court found that an oil and gas company had committed trespass by drilling and installing pipelines under the landowner’s land, even though the deepest well was 2,800 ft below the surface.

The case confirmed that any activity on or under a landowner’s land, even deep underground, will constitute trespass. Under the current regime, coming to an agreement for access with multiple landowners or pursuing so-called ancillary rights under statutory law, can cause long delays. The Government’s proposed changes include:

• granting automatic underground access rights to shale gas operators for horizontal drilling at least 300m below the surface;
• a voluntary community payment of £20,000 for each unique horizontal well that extends more than 200m laterally (for projects benefitting the community);
• public notification of drilling proposals and details of the voluntary payment.

The proposal does not apply to any work above 300m depth; therefore, access for the drilling pad itself will be subject to negotiation with the landowner or the ancillary rights regime.

Still it appears that legislation will be put before Parliament to implement a more streamlined system and rights of access. With the exploration licenses expected in the current licensing round, the outlook is positive for greater shale gas exploration and production in the UK.

Sources

^[1] Bocardo SA v Star Energy [2010] UKSC 35

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This post was written by Lucy Bruce Jones (lucy.brucejones@nortonrosefulbright.com or +44 20 7444 5159) from Norton Rose Fulbright's Energy Practice Group.

Web seminar: Legal lessons learned in shale plays in North America

With North America leading the way in shale oil and gas production, interest is mounting globally in the unconventional hydrocarbon sector. On Wednesday, September 17th , we will host a web seminar on Legal lessons learned in shale plays in North America, which will look at the key legal issues that have arisen in North America related to shale development, the lessons learned, and the implications for countries where shale development is still in the early stages.

This web seminar will be broadcast in two separate sessions for Asia/Australia audiences (session 1) and Europe/South Africa audiences (session 2) respectively. If you are unable to register for a session, a recording of the web seminar which will be made available after the event.

Session 1: Wednesday, September 17

• 9:00 am – 10:15 am Hong Kong, Singapore 
• 11:00 am – 12:15 pm Sydney, Melbourne 

To learn more about the seminar and register please access the following link: Legal lessons learned in shale plays in North America – Session 1

Session 2: Wednesday, September 17, 2014

• 6:00 am – 7:15 am Los Angeles 
• 7:00 am – 8:15 am Calgary 
• 8:00 am – 9:15 am Houston 
• 9:00 am – 10:15 am New York 
• 2:00 pm – 3:15 pm London 
• 3:00 pm – 4:15 pm Cape Town 

To learn more about the seminar and register please access the following link: Legal lessons learned in shale plays in North America - Session 2

Report prepared by UK Parliament Committee urges development of natural gas and the use of hydraulic fracturing

On May 8, 2014, the House of Lord s Economic Affairs Committee strongly endorsed the United Kingdom’s development of shale gas resources and the use of hydraulic fracturing in its report entitled “The Economic Impact on UK Energy Policy of Shale Gas and Oil.” Successful development would provide substantial economic benefits, reduce imports, and help maintain security of supply.

Pointing to the successful development of shale gas in the United States, the Committee states that “exploration and appraisal are urgently needed to establish the economic potential of the UK’s shale gas and oil resource.” Without timely development, the UK “runs a serious risk of losing the energy intensive and petrochemical industries which depend on competitively-priced energy and raw materials…”

While recognizing that the public’s concerns about environmental and human health issues “must be taken seriously and every possible effort made to reduce or eliminate risk and provide reassurance,” the Committee considers these risks to be “low if shale development is properly regulated…,” with wells properly constructed and sealed.

Urging that the UK “seize the opportunity” to develop its shale resources, the Committee expresses concern that “regulatory uncertainty is blocking development” because the UK Environment Agency has not received or approved any permit applications since the fracking moratorium was lifted in 2012.

Seeing the development of shale oil and gas as “an urgent national priority,” the Committee recommends that the Government “go all out for shale” by streamlining its regulatory structure and by reassuring the public that environmental and health risks are low with proper regulation. Also the Committee suggests that energy companies should improve their presentation and communication skills to help secure public support.

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This post was written by Barclay Nicholson (barclay.nicholson@nortonrosefulbright.com or 713.651.3662) from Norton Rose Fulbright's Energy Practice Group.

Public Health England releases draft study of health impacts from shale gas extraction

Public Health England (PHE) is an agency under the UK’s Department of Health tasked with ensuring that the public is protected from infectious disease and environmental hazards. In October 2013, PHE released for public comment its draft Review of the potential public health impacts of exposures to chemical and radioactive pollutants as a result of the shale gas extraction. Due to the limited amount of shale gas drilling in the UK, PHE relied on literature and data from countries, such as the U.S., which already have commercial scale shale gas extraction operations. From the review of these materials, PHE identified several shale gas extraction activities that may impact surface and ground water, including

• The production and storage of fracking fluid, flowback water, and other drilling by-products which may be spilled and then seep into subsurface aquifers or surface water resources.
• Well blow-outs that may result in contamination of surface and ground water.
• Injection of fracking fluids which may lead to contamination of aquifers if well integrity fails.
• The improper treatment or disposal of wastewater during transportation off-site that may result in pollution of surface waters.

After analyzing these risks, PHE concluded that “the potential risks to public health from exposure to the emissions associated with shale gas extraction are low if operations are properly run and regulated. Most evidence suggests that contamination of groundwater, if it occurs, is most likely to be caused by leakage through the vertical borehole.” Additional findings include:

• Good on-site management (well integrity, post operations, and appropriate storage and maintenance of hydraulic fracturing fluids and wastes) and appropriate regulation of all phases of gas exploration and development are “essential to minimize the risk to the environment and public health.”
• Emissions which can impact local air quality come from a variety of shale gas extraction activities and sources, including drilling, flaring, diesel engines, storage tanks, and vehicles. 
• All chemicals used in a hydraulic fracturing operation must be disclosed for a meaningful risk assessment.

PHE recognizes the need for continued work to more specifically define the potential health impacts of hydraulic fracturing and shale gas development. For this continued work, PHE recommends baseline environmental monitoring in the vicinity of shale gas activities, broadening the review to encompass socio-economic impacts (i.e., increased traffic, impacts on local infrastructure, and worker migration), the disclosure of all fracking fluid chemicals, and the identification of potentially mobilized natural contaminants.

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This post was written by Barclay Nicholson (barclay.nicholson@nortonrosefulbright.com or 713.651.3662) from Norton Rose Fulbright's Energy Practice Group.

Shale Gas Producers Offered Tax Breaks in UK

On July 19, 2013, the British Government, having lifted its 18-month  ban on hydraulic fracturing late last year, proposed cutting its shale gas production income taxes from 62 percent to 30 percent in an effort to encourage shale gas development which would create more jobs and keep energy costs low for millions of people.

In June, a report from the British Geological Survey indicated that there was more than twice as much shale gas in the north of England than there was thought previously to be in the entire country (more than 1,300 trillion cubic feet of shale gas in Lancashire and Yorkshire). 

A recovery rate of 10 percent (similar to US fields) would give the UK enough gas to meet demand for the next 47 years.

Chancellor of the Exchequer George Osborne explained that the slash in taxes “recognizes the high upfront costs associated with shale gas projects and ensures that the greatest support is offered to the industry in its early stages when costs per pad are likely to be highest.”

To ensure confidence in the hydraulic fracturing process, planning practice guidelines have been issued and operators have promised local communities a 1 percent share of output revenue plus at least 100,000 pounds ($152,000) for each fracked well.

According to Osborne, the government wants “to create the right conditions for industry to explore and unlock that potential in a way that allows communities to share in the benefits.”

After a short consultation period, the proposed legislation will be put before Parliament.

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This post was written by Barclay Nicholson (barclay.nicholson@nortonrosefulbright.com or 713.651.3662) from Norton Rose Fulbright's Energy Practice Group.

U.K. Lifts Ban on Hydraulic Fracturing

On December 13, 2012, Edward Davey, the U.K.’s Secretary of State for Energy and Climate Change, announced that hydraulic fracturing could resume in the U.K., subject to new controls to mitigate the risks of seismic activity. This follows the European Parliament’s rejection of a Europe-wide moratorium on hydraulic fracturing on November 21, 2012.

In the U.K., hydraulic fracturing was banned in May 2011 after two small earthquakes occurred near Lancashire, England.

In mid-2012, the U.K. Department of Energy and Climate Change (DECC), the Royal Society, and the Royal Academy of Engineering concluded that “the health, safety, and environmental risks associated with [hydraulic fracturing] can be effectively managed” with new controls.

Under the new rules, in addition to obtaining all other necessary permits and consents before fracking, the operator must:

• Conduct a pre-fracking review of all information on seismic risks and the existence of faults in the area; 
• Submit to the DECC a progressive fracking plan showing how seismic risks will be addressed; 
• Perform seismic monitoring before, during, and after the frac; and 
• Implement a “traffic light” system which will be used to identify unusual seismic activity requiring reassessment or halting of operations. 

Secretary Davey also announced that the recently formed Office for Unconventional Gas and Oil will be overseeing the regulation of hydraulic fracturing and that a study will be commissioned to investigate possible impacts of shale gas development on greenhouse gas emissions and climate control.

Read Secretary Davey's complete statement.

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This article was prepared by Barclay R. Nicholson (bnicholson@fulbright.com or 713 651 3662) from Fulbright's Energy Practice.

Injection Wells and Their Possible Link to Seismic Activity

The use of injection wells, a preferred method for disposal of various fluids such as wastewater or brine (salt water), is a popular topic in the news media lately due to a suspected link between use of these wells and earthquakes.

Texas, Arkansas, Oklahoma, the United Kingdom, and most recently Youngstown, Ohio and central West Virginia have been experiencing frequent, small earthquakes. On New Year’s Eve, a 4.0 magnitude earthquake struck just outside of Youngstown, Ohio. This quake was just one of 11 earthquakes experienced in the area since March, 2011.

D&L Energy, whose affiliate Northstar Disposal Services LLC operates the Youngstown well, voluntarily shut the well down after the tenth earthquake occurred. Soon after, Ohio Governor John Kasich’s administration placed a temporary moratorium on injection wells within a 5-mile radius of Northstar No. 1, the particular Youngstown well believed to be the cause of the quakes.

This occurred less than a year after Arkansas declared a moratorium on disposal wells due to earthquakes during the development of the Fayetteville Shale. The Ohio Department of Natural Resources believes that fracking waste pumped into Northstar No. 1 has been seeping into a previously unknown fault line and, as a result, has caused this seismic activity.

The chairman of the Department of Earth and Atmospheric Sciences at Cornell University analogizes by saying the water pressure essentially “greases the wheels of the earthquake process that is there naturally and causes the earthquakes to occur at lower stress levels than they might normally have needed to occur.” At the same time, for the seismic activity to occur, the wastewater would need to be injected specifically into a stress region.

Seismographs from Columbia University’s Lamont-Doherty Earth Observatory were set up in Youngstown and concluded that the earthquake occurred nearly 2 miles below the surface, the same depth as the well. Ohio has over 177 injection wells throughout the state.

However, the Ohio Department of Natural Resources’ director stated that the Northstar No. 1 well is the only well that has been related to seismic activity in the state since injection wells were first installed in the 1970s.

Some state senators have called for the U.S. Environmental Protection Agency to intervene and for an indefinite, statewide moratorium on the use of injection wells.
A statewide moratorium could present a major problem, both for the livelihoods of thousands of Ohio residents as well as for other states who rely on these injection wells for disposal of water generated from oil and gas activities in those states.

Prior to its shutdown, nearly 5,000 42-gallon barrels of brine water were pumped into Northstar No. 1 daily. A majority of this water came from oil and gas wells in Pennsylvania. A similar situation has arisen in West Virginia, which experienced 10 quakes in 2010 and another one in January 2012.

After the initial quakes in 2010, the West Virginia Department of Environmental Protection worked with Chesapeake Energy to reduce the amount of fluid being injected into its disposal wells in the area.
According to news reports, Chesapeake Energy had recently begun to slowly increase the amount of injected fluid when the latest earthquake struck. While West Virginia’s Department of Environmental Protection believes there is a link between the earthquake and Chesapeake Energy’s increased injection fluid, there currently is no evidence that these events are related.

The company is skeptical that any link exists given that the earthquake occurred 6 miles from the disposal well, nearly 3 miles below the well’s disposal zone, and 25 earthquakes have been reported within 100 miles of the current seismic activity since 2000, one of which struck before the injection well was even drilled.
Since seismic monitors were not present at the site, the link between the quakes and the increased injected fluid remains unproven. Studies attempting to link earthquakes to underground injection are ongoing.

U.S. EPA has not yet weighed in on this issue, but as the news media continues to focus on the issue and public concerns continue to rise, that may change.

This article was prepared by Heather M. Corken (hcorken@fulbright.com or 713 651 8386) and Kristen Roche (kroche@fulbright.com or 713 651 5303) from Fulbright's Environmental Law Practice Group.

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SOURCES
Henry Fountain, Ohio: Sites of Two Earthquakes Nearly Identical, N.Y. Times, Jan. 3, 2012, available at http://www.nytimes.com/2012/01/03/science/earth/ohio-sites-of-two-earthquakes-nearly-identical.html?_r=1&ref=us.

Julie Carr Smyth, Company cautions against linking well, Ohio quakes, The Washington Times, Jan. 12, 2012, available at http://www.washingtontimes.com/news/2012/jan/12/company-cautions-against-linking-well-ohio-quakes/.

Joe Vardon, State links quakes to work on wells, The Columbus Dispatch, Jan. 1, 2012, available at http://www.dispatch.com/content/stories/local/2012/01/01/state-links-quakes-to-work-on-wells.html.

Edward McAllister, Avoiding Fracking Earthquakes May Prove Expensive, Scientific American (Jan. 3, 2012), available at http://www.scientificamerican.com/article.cfm?id=avoiding-fracking-earthquakes-expensive.

Ohio Connects Quakes to Injection Well, Previously Unknown Fault Line Nearby, Business Journal Daily (Jan. 12, 2012), available at http://business-journal.com/ohio-connects-quakes-to-injection-well-previously-unknown-fault-line-nearb-p20690-1.htm.

Spencer Hunt, A seismic shift in Ohio’s concerns over earthquakes, The Columbus Dispatch, Jan. 9, 2012, available at http://www.dispatch.com/content/stories/local/2012/01/09/a-seismic-shift.html.

Joe Vardon, State links northeast Ohio quakes to injection wells, The Columbus Dispatch, Dec. 31, 2011, available at http://www.dispatch.com/content/stories/local/2011/12/31/new-quakes.html.

The Associated Press, W.Va. DEP: Injection, quakes could be tied, Star Gazette, Jan. 13, 2012, available at http://www.stargazette.com/article/20120113/NEWS11/120113015/W-Va-DEP-Injection-quakes-could-tied.

The Associated Press, Chesapeake skeptical of quake-drilling connection, Charleston Gazette, Jan. 13, 2012, available at http://wvgazette.com/News/Business/201201130127.