It has been predicted by Amec (an oil industry consultant) that
the full exploitation in the UK of oil and gas reserves trapped in
shale rock formations (a process known as ‘fracking’)
will be capable of producing more than twice the 100 billion cubic
metres of gas consumed annually in the UK. Encouraged by estimates
of shale oil and gas reserves in the UK, the British government is
embarking on an overhaul of the law in this area. The industry is
governed by a confused patchwork of statute, common law and
regulation. The government has announced proposals to address this,
including modernising the ancient law of trespass, and these
changes will be incorporated into the new Infrastructure
Bill.
The extent of ownership of land beneath a landowners property had
not been thoroughly examined by the courts until the 2010 case of
Bocardo v Star Energy UK Onshore Ltd. This case considered
whether Star Energy had ‘trespassed’ on Bocardo’s
land by drilling horizontally underneath it at a depth of 2,800
feet to access a conventional underground oil field. There was no
suggestion that the oil belonged to the landowner; hydrocarbons
have been reserved to the Crown since the Petroleum Act 1934. The
question was whether Star Energy should have obtained permission
from Bocardo before drilling under its land.
The Court found that there was a point at which the concept of
ownership inside the earth approached ‘absurdity’, but
that the depth to which the wells were drilled in this case did not
get anywhere near that. The landowners could still be said to
‘own’ the strata from which hydrocarbons are extracted
and anyone who wished to delve into that strata needed the
landowner’s permission. Although the landowner was entitled
to compensation, the court determined that the compensation should
be pegged to the loss suffered by the landowner and not the
potential profits of Star Energy. Accordingly, the compensation was
assessed at only £1,000, as the drilling had not interfered
with Bocardo’s use or enjoyment of the land ‘one
iota’.
The discussions in this case are relevant to the UK’s nascent
fracking industry: shale wells are drilled first vertically into
the seam of rock, then horizontally along it. As the law currently
stands the exploration company will need the consent of every owner
along the length of the horizontal part of the well shaft, which
can extend for miles. There are compulsory purchase powers under
the Mines (Working Facilities and Support) Act 1966 that could
theoretically be used to take land away from landowners who refuse
permission, but this route would be costly in both time and money.
If a large enough number of landowners refused permission (as has
happened recently in the village of Fernhurst in West Sussex) the
court proceedings could be drawn out for years, scuppering any
chances of commercial viability. Landowners could use this leverage
to negotiate privately with fracking companies for the lease or
sale of their land, but given the compensation benchmark set in
Bocardo there seems little scope for making significant
sums.
The new Infrastructure Bill will change the law so that it will no
longer be a trespass to drill far beneath someone else’s land
without their permission. The removal of this last legal barrier
may make setting up shale wells in the UK more attractive to
investors.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.