The Government Gives The Green Light For Shale Gas Exploration

3rd February 2014

David Cameron has given his full support to shale gas exploration by recently announcing tax breaks to companies involved and has outlined plans to give local authorities all the business rates collected from shale gas schemes within their region – rather than the usual 50%. It is common knowledge that the UK has to find alternative measures of producing energy if the country is to keep pace with legally binding cuts in CO2 emissions, and January’s announcements illustrate the Governments keenness to press ahead.

The companies at the forefront of the UK’s nascent shale gas industry are planning a “substantial” expansion in the number of drilling sites across the UK. Mr Cameron’s announcement on business rates came as French company Total confirmed plans to invest about £30m to help drill two exploratory wells in Lincolnshire.

Energy Minister Michael Fallon said he expects up to 40 prospective shale gas sites to be drilled in England over next two years, which will include 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 with 11 licenses for exploration already active within the Thirsk and Malton area, 3 licenses within the Scarborough and Whitby region and other single licence permits within the Penrith, Border and Carlisle areas. Potential for exploration has also been identified within Northumberland.

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.

So how does this affect landowners?

Under the Petroleum Act 1988, shale gas belongs to the Crown, not the Landowner. Exploration can only happen once the Department for Energy and Climate Change 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. Parts of the north are already subject to certain agreements.

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

Access requirements by the operators 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 under the statutory route rather than by agreement, compensation is payable on what the landowner is losing rather than what the operator is gaining, i.e. the surface land take loss, disturbance and inconvenience.

Whilst shale gas exploration is still very much in its early stages, landowners cannot afford to ignore the grant of an extraction licence over their land or adjoining property. Shale Gas exploration will not make landowners wealthy, as gas deposits are owned by the Crown. However opportunities may arise through the manner in which the gas is to be extracted.

What about Tenants?

The terms of the tenancy will inevitability be the first reference point, but operators will be obliged to pay compensation for loss of income and any disturbance or inconvenience caused by access being taken.
As we go forward, we are only going to hear more about shale gas exploration and therefore it is important to understand what rights an operator has in order to develop a solid negotiating position to achieve the best results should your land be identified for use.

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