Shale Gas and Implications for Landowners

1st August 2013

The Department of Energy and Climate Change (DECC) has recently announced findings of larger deposits of shale gas than first thought beneath counties within the North of England. Scientists from the British Geological Survey (BGS) have estimated that there is likely to be some 40 trillion cubic meters of shale gas beneath the ground within our region.

It is common knowledge that the UK has to find alternative measures of producing energy from low carbon means if the country is to keep pace with legally binding cuts in CO2 emissions. The Government seems set to pursue shale gas exploration with full enthusiasm and this was clarified by last month’s announcement from George Osborne who outlined plans to give tax breaks to companies involved in the UK’s nascent shale gas industry.

Shale gas is extracted through “fracking” – a controversial process of freeing trapped gas by pumping a mixture of water, sand and chemicals down a well into the ground to fracture rocks, thereby releasing natural gas which in turn is collected and utilised to produce electricity.

Whilst the BGS’s findings does not suggest that the entirety of the shale gas deposits identified could be extracted for use, the report does give both industry and regulators an indication of how best to plan future exploratory drilling, so that they can determine how much of the gas would be able to be commercially recovered.

Under the Petroleum Act 1988, shale gas belongs to the Crown, not the Landowner, however exploration can only happen once DECC has issued a Licence to an operator following a competitive but stringent bidding process. Such licenses will grant exclusivity to operators in defined licence areas and parts of the north are already subject to certain agreements.

An operator is also able to obtain certain ancillary rights under legislation which include an ability to occupy land, to erect buildings and lay pipes, amongst others, in order to carry out extraction of the gas if deemed feasible, with such rights able to be enforced under statutory powers if terms cannot be agreed between the Landowner and operator.

The operators access requirements should be carefully scrutinised as these may need to be separately negotiated as part of any terms of entry.

Compensation will of course be payable to a landowner for any of these rights being enforced upon their property, however if pursued down a statutory route rather than by agreement, compensation has been established as what the landowner is losing rather than what the operator is gaining.

Whilst shale gas exploration is still very much in its early stages, landowners cannot afford to ignore the grant of an extraction licence under their land or adjoining property. Shale Gas exploration is not going to make landowners wealthy, as it has done on the other side of the Atlantic simply because any gas deposits are owned by the Crown, however opportunities may arise through the manner in which the gas is to be extracted. With this coming to the forefront of the Governments agenda, it is important to understand what rights an operator has in order to develop a solid negotiating position should your land be identified for use.

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