Joanne Kelly
As the government moves to ease the way for fracking, Joanne Kelly outlines the key areas of the controversial technique
David Cameron advised earlier this year that his government was “going all out for shale” and with it comes new opportunities for contractors and supply chains in creating the associated infrastructure for this relatively new industry.
Further evidence of government support is noted by the proposals due to be announced in next month’s Queen’s Speech to wriggle out the knots caused by the current trespass laws. The trespass issues were brought to light by the UK Supreme Court in Star Energy Weald Basin Ltd v Bocardo SA in 2010. In summary, Star Energy had drilled for oil under Mr Al-Fayed’s estate in Surrey without his permission. Bocardo (the company owned by Al-Fayed) argued that Star had trespassed on his land. Bocardo issued a claim seeking damages of around £700,000. The Supreme Court found that Star had trespassed on Bocardo’s land, notwithstanding that the wells were between 800 to 1,300 foot deep.
The proposals due to be published next month are intended to make it easier for exploration companies to drill under privately owned land where the landowner refuses consent. The proposals are not finalised but, both Michael Fallon, the business minister, and Ed Davey, the energy secretary, are said to be on board.
Fracking in the UK or hydraulic fracking – which involves injecting a mix of water, sand and chemicals underground at high pressure to create fractures in the rock thereby releasing the oil and gas trapped inside – has had slower progress than in the US. There are various factors contributing to the slow pace:
Economics
On the economics, viability is an issue, as the costs to exploration companies of drilling one well is huge relative to the cost of the gas that they harvest. That in mind, the process in the medium to long term should become more efficient.
Geology
The region identified as most promising for fracking stretches from Cheshire to Yorkshire. The geology of this area is “intrinsically more complex” (than the North American shale area) says Joe Cartwright, Shell Professor of Earth Sciences at Oxford University.
Protests
Delays are also due to concerns from protestors are that fracking may contaminate the groundwater and increase the risk of earthquakes. The protestors felt that the tremors in Lancashire in 2011 were a direct result of earlier fracking which took place in a nearby location during 2010/2011. Last year, we saw protests at the Cuadrilla site at Balcombe in West Sussex.
Supply chain
The supply chain is in its infancy and will need time to evolve and bring efficiencies. In terms of the contractual structure, there are standard form drilling contracts (taken from the established conventional oil and gas industry) that are likely to be used for engagement of the supply chain. This young market will inevitably bring opportunities to contractors and open up a potential new work stream.
Licensing
The process of obtaining consent to drill a well is the same whether the well targets conventional or unconventional gas. Operators bid for exclusive rights to an area in competitive license rounds. The operator then needs the landowner’s consent and planning permission, which may require an environmental impact assessment.
Fracking has been subject to protests and legal wrangles
In 2008, 97 petroleum exploration and development licences were awarded for exploration in the 13th Round of Onshore Licensing. A 14th licensing round is being considered for 2014. The Department of Energy and Climate Change has a map showing, by location, the current licenses.
The government has committed to any local community where fracking is taking place that the drilling operators will pay £100,000 plus 1% of revenues from any site.
Whilst early days for UK fracking, with government support, it is likely this will remain a viable alternative energy source. The health barriers appear to be breaking down with Public Health England’s recent report stating that on current evidence, the risk to public health is low. Exploration continues with commitment to the local communities. Next month is likely to see the government clear the path making it easier for operators to obtain access to a drilling site in circumstances where the landowner refuses the operator access.
Joanne Kelly is a partner in the construction and engineering team at international law firm Taylor Wessing
