Shale Gas & Fracking Toolkit Property Rights Part 6
Shale Gas & Fracking ToolkitProperty Rights
Part 6
6540
A changing landscape for property rightsThe very nature of the shale gas identification and extraction process means that property rights feature highly on both the political and business agendas.
“If we do nothing to address this issue, the commercial exploitation of shale gas and oil is unlikely to develop to a significant scale, in a timely manner, or at all.”DECC Consultation on Proposals for Underground Access for the Extraction of Gas, Oil or Geothermal Energy, May 2014
“Land Registry receives 73,000 applications claiming historical land rights.... The Duchy of Lancaster and the Duchy of Cornwall have been among those to assert their historic ‘manorial mineral ownership’.”Daily Telegraph, 15 January 2014
“Ministers have admitted they are looking at overhauling trespass laws to make it easier for energy companies to explore shale gas amid concerns that efforts could otherwise be stymied by lengthy and costly court proceedings.”The Telegraph, 15 August 2013
“The Church of England has defended its decision to assert ownership of ancient mineral rights beneath up to 500,000 acres of land throughout the UK paving the way for commercial exploitation as speculation grows that it might embrace fracking.”Investments Europe, 19 August 2013
1 www.pinsentmasons.com/shale
Pinsent Masons | Shale Gas & Fracking Toolkit Part 6
Securing Property RightsA crucial but challenging part of the fracking process and the successful exploitation of shale gas reserves is to secure those property rights needed at each phase of development. Without these, potential sites cannot be explored, appraised or developed.
Fundamental to understanding the risks is an appreciation that not all ownership of surface land comes with an automatic right to exploit/own the minerals and subsurface strata. In certain instances ownership of the surface land and the subsurface minerals may have been separated.
Owners of these property rights are increasingly recognising their value in the context of shale gas development. Many, including the Church of England and the Duchies of Lancaster and Cornwall have sought to register property rights (subsurface minerals rights) they may not have previously asserted to protect their position and rights and to comply with new Land Registry rules. Also arguably to participate in any potential negotiations with shale gas developers on access.
Others opposed to shale gas and fracking development for environmental or other reasons are encouraging the strategic acquisition of land (surface and/or subsurface) to create fracking ‘no go’ areas.
The piecemeal nature of the regulatory requirements currently governing the shale gas industry in the UK means that property rights must be obtained independently of other licences and permissions. There is no automatic grant of all of the necessary property rights required to implement Petroleum Exploration and Development Licences (PEDLs).
Scope of Property Rights Required The exact scope of the property rights required will vary in each case according to the nature of the scheme in question and also according to the relevant stage of the shale gas extraction process.
By their very nature, shale gas extraction processes will involve works both above and below the surface and both vertical and horizontal drilling. Property rights must therefore extend to the subsurface where works may well be substantial and extend both vertically and horizontally across varying distances. As noted above, it is common for subsurface land to be in separate ownership to surface land. Furthermore, horizontal works and operations may also affect a number of landowners. Frequently, it is the case that rights over mines and minerals below the surface have been retained by the original or previous owners of the surface land. The duration and extent of property rights required may also vary.
Initial exploratory and appraisal investigations are necessarily less intrusive than works associated with the full scale development and production phase. As a result, short term licensing may suffice for some activities whilst others may require the security of more permanent rights such as long term leases or a complete transfer of land ownership to those involved in the extraction of shale gas. Pending the outcome of initial exploratory and appraisal works and where the long term future of a site has not yet been ascertained, it might be appropriate for those looking to exploit the site to consider option agreements over land which will give them the first call on the relevant land and subsurface property rights in the event they require these.
2
65403
Property Rights – Phases of Development
Exploratory Stage
• Surface access and rights over land to enable analysis of seismic data and the siting of exploration wells and monitoring equipment
• Subsurface access (both vertical and horizontal depending on the wells in question) to enable drilling of exploration wells and carrying out of exploratory hydraulic fracturing.
Property rights are more likely to be short term and less permanent such as licences option/exlusivity agreements or agreements for lease.
Appraisal Stage • Surface access and rights over land to put in place more significant infrastructure including drilling platforms for longer term testing and additional drilling, further wells and hydraulic fracturing
• Subsurface access (again both vertical and horizontal depending on the wells in question) for further wells and any additional infrastructure below ground.
Property rights are more likely to be medium to short term and semi-permanent such as longer term licences option/exlusivity agreements or agreements for lease.
Development and Production Stage
• Surface access and rights over land for more permanent infrastructure to facilitate the full scale exploitation of shale gas including production wells, production facilities, power generating and processing facilities
• Subsurface access (again both vertical and horizontal depending on the wells in question) for further and more permanent production wells and any additional infrastructure below ground.
Property rights are more likely to be longer term and more permanent such as long term leases or achieved as a result of land purchase.
General • Surface and subsurface access and rights over land for any construction laydown areas, storage facilities, production and office facilities, necessary gas, water and other pipelines, cabling, parking and private transport routes etc.
Property rights will depend on the relevant stage of the shale gas extraction process. Specialist wayleaves may be used for cabling and pipelines.
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Pinsent Masons | Shale Gas & Fracking Toolkit Part 6
How to obtain property rights required?At present, such rights can be obtained in one of two ways:
1. Negotiation PEDLs do not grant ancillary rights over land. At present, the vast majority of property rights are obtained through negotiation with land owners.
However, in some instances it is not possible to reach a negotiated settlement. This may be because:• the relevant owner cannot be identified e.g. because the title to the land in question is unregistered or because the rights over the
mines and minerals below the surface have been retained by the original or previous owners of the surface land when this was sold and they have not been registered in their own right
• commercial terms can not be agreed with the landowner in return for the grant of requested property rights.
2. Compulsory Acquisition under the Petroleum Act 1998 and the ‘National Interest’ In such circumstances, developers in possession of a PEDL have the option of applying for compulsory acquisition rights under the
Petroleum Act 1998 which incorporates and gives effect to the Mines (Working Facilities and Support) Act 1966. These rights include rights of access on land and to sink boreholes to exploit shale gas supplies (as a hydrocarbon), to build associated infrastructure and to use water supplies in connection with such works.
To succeed in obtaining these compulsory acquisition rights, a developer will need to demonstrate (firstly to the Secretary of State and subsequently the High Court/Court of Session) that the grant of such rights is in the national interest and that negotiations with landowners have not been successful or that negotiations have not been possible.
The Price of Property Rights Negotiated Rights
Payments will depend on what is agreed by the parties involved.
Compulsory Acquired Rights Compensation If rights are granted, costs and compensation are payable by the developer. It is considered that compensation will be assessed in line
with established compulsory purchase principles.
The regime is largely untested and unused. This is most likely because independently negotiated settlements are much quicker and have to date proved effective. In light of the recent moves to create “no-go” areas and the actions of the various anti-fracking campaigns this may be in the process of changing (subject to any reforms introduced as noted below).
A Changing Landscape? If provisions set out in the Infrastructure Bill are given statutory effect and legislation is enacted (which DECC recommend in its
response to its recent consultation, 25 September 2014) an underground right of access would be introduced. It would apply to drilling activities at or below 300m in England and Wales, and therefore much of the extensive horizontal drilling activities that are associated with shale gas activities and development.
Experts have stated and DECC agrees that horizontal drilling activities would result in little impact on landowners. The provisions prescribed in the Infrastructure Bill do not apply to Scotland.
The price of such access to drill would be a voluntary community payment of £20,000 per lateral well and there would be no payments to individual land owners. There would also be a clear notification system that would alert local communities to drilling activities. The existing regime for access would continue to apply above 300m.
“These proposals allow Shale Gas exploration to go ahead while protecting residents through robust regulation that is in place.”DECC Consultation, September 2014.
Nationally Significant Infrastructure Project (NSIP) Route If shale gas and fracking developments are brought within the scope of the Planning Act 2008 and defined as NSIPs then developers could potentially obtain rights as part and parcel of their application for a Development Consent Order (DCO) in England and Wales. However, the Government confirmed in July 2013 that such developments would not be treated as NSIPs at this time.
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To proceed with shale gas development in the absence of all the required property rights puts shale gas developments at risk of trespass claims.
Bocardo SA v Star Energy (2010)Supreme Court (England and Wales)Oil companies were held to have committed a trespass by boring pipelines at depth below the land of a private landowner in order to recover petroleum which they had a licence to extract as they did not have the landowner’s owner agreement before doing so.
Reasons• The landowner’s title extended down to the strata below the surface including the minerals that were to be found there and as a
consequence the landowner was entitled to possession of the subsurface strata through which the pipelines passed.
• The licence granted to the oil companies to extract petroleum pursuant to statute conferred no express or implied rights to bore pipelines through the land of another within the licensed area in the absence of agreement or the grant of an ancillary statutory right.
Penalty• A payment based on ordinary compulsory purchase principles which would have been £82.50 had the oil companies not been
prepared to pay £1,000 in negotiations. A payment of £1,000 was ordered.
Warning Notes• The Court was heavily influenced by the fact that there was no interference in any practical sense with the land through which the
pipeline passed.
• Trespass cases in intervening years (not on drilling cases specifically but more generally) have led to the grant of injunctions halting or preventing activity and/or substantial damages claims where interference was significant/where developers’ behaviour was deemed unacceptable.
• This case proceeded to the Supreme Court which incurred significant time, cost and uncertainty for the parties involved. Notwithstanding the ultimate outcome.
“The owner of the subsurface is entitled to say that his land is being interfered with when it is bored into by someone else. His right to object is inherent in his right of ownership of the land. It is nothing to the point that he is not making any use of it. The fact that an underground wayleave is included in the ancillary rights referred to in section 3(2)(b) of the 1923 Act reinforces the conclusion that is to be drawn from the provisions of the 1934 Act that a licensee who does not already enjoy a right to enter upon someone else’s land needs to acquire an ancillary right from the owner of that land if he wishes to do this.” Bocardo SA v Star Energy (2010)
“That the present context is one of compulsory acquisition of rights over land seems to me indisputable … It would seem to me most odd had Parliament in 1934 expropriated with no compensation whatever the property in all subterranean petroleum together with the exclusive right to search, bore for and win it, and yet at the same time intended that the landowner, beneath whose land the Crown’s licence holder must necessarily bore to achieve the statutory purpose of maximising petroleum recovery in the national interest, should thereby become entitled to “a fair share of the spoils” as the appellants contend. And to my mind such a supposition becomes more bizarre still when one recognises that Parliament expressly stipulated for not less than a 10% uplift in the statutory compensation payable on account of the landowner being powerless to deny the licence-holder the ancillary right he requires. Why would Parliament both allow him to exploit his bargaining position for all the world as if the parties’ negotiation was taking place in a routine commercial context beyond the reach of legislation and then add upwards of 10% simply because he cannot at the end of the day refuse to grant the ancillary right required and is unable to charge for it more than is fair and reasonable?” Bocardo SA v Star Energy (2010)
Avoid the pitfalls
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Pinsent Masons | Shale Gas & Fracking Toolkit Part 6
Strategic and Tactical Considerations
• Establish all relevant landowners at the outset (including surface and subsurface owners) to ensure any negotiated settlement is comprehensive and parties are less able to create a ‘ransom’ situation. Ideally complete settlements simultaneously.
• Give early consideration to the property rights required and the duration and extent of such rights to ensure that what is being agreed is not more significant than required. Consider options to reserve or exercise more substantial property rights pending the results of exploratory and appraisal works.
• Consider obtaining title and/or insurance to cover off risks of trespass to land whose ownership cannot be established.
• Consider the strategic acquisition of land through alternative corporate entities.
• To support any claim for compulsory rights collate evidence of all attempts to negotiate an appropriate settlement with landowners.
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Prop
erty
The
Shal
e Gas
Ext
ract
ion
Proc
ess,
from
iden
tifica
tion
of a
pot
entia
l dev
elop
men
t are
a to
the
full
com
mer
cial
exp
loita
tion
of th
at a
rea,
con
tain
s man
y st
ages
and
can
last
ove
r 30
year
s. A
t eac
h st
age
Dev
elop
ers m
ust m
eet a
num
ber o
f reg
ulat
ory
requ
irem
ents
that
are
set
out i
n th
e tim
e lin
e be
low
.Re
fer t
o ta
ble
on p
age
3 of
this
Too
lkit
for d
etai
ls o
f rel
evan
t pro
pert
y ri
ghts
that
may
be
requ
ired
at e
ach
phas
e of
dev
elop
men
t.
SEIS
MIC
ITY:
this
issu
e ha
s the
pot
entia
l to
be a
stu
mbl
ing
bloc
k to
pro
pose
d or
com
men
ced
oper
atio
ns a
nd is
som
ethi
ng to
whi
ch D
evel
oper
s m
ust g
ive
cons
ider
able
thou
ght.
Dev
elop
ers
mus
t ass
ess t
he ri
sk o
f act
ivat
ing
faul
ts in
the
prop
osed
lice
nce
area
and
al
so m
onito
r bac
kgro
und
seis
mic
ity b
efor
e fr
acki
ng o
pera
tions
com
men
ce. R
eal t
ime
seis
mic
mon
itorin
g w
ill a
lso
be n
eces
sary
dur
ing
oper
atio
ns a
nd o
pera
tions
will
nee
d to
be
paus
ed o
r hal
ted
whe
re s
eism
icity
pas
ses
a ce
rtai
n le
vel
Iden
tific
atio
nD
evel
oper
iden
tifies
suita
ble
area
s for
shal
e ga
s exp
lora
tion.
1 –
3 Ye
ars
Plan
ning
Req
uire
men
ts:
• Non
e.Pl
anni
ng R
equi
rem
ents
:• P
P fr
om M
PA (L
PA in
Sco
tlan
d)
for d
rillin
g EX
PLO
RATO
RY
wel
ls, c
hang
e of
use
in la
nd a
nd
any
asso
ciat
ed w
orks
• EIA
– d
epen
ding
upo
n na
ture
, si
ze a
nd lo
catio
n of
dev
elop
men
t pr
opos
als a
nd c
onsu
ltatio
n st
rate
gy to
be
adop
ted.
Plan
ning
Req
uire
men
ts:
• PP
from
MPA
for d
rillin
g of
A
PPRA
ISA
L w
ells
and
any
as
soci
ated
wor
ks a
nd u
pgra
des
(e.g
. dril
ling
plat
form
s)• E
IA –
dep
endi
ng u
pon
natu
re,
size
and
loca
tion
of d
evel
opm
ent
prop
osal
s and
con
sulta
tion
stra
tegy
to b
e ad
opte
d• S
ecti
on 1
06 p
lann
ing
oblig
atio
ns li
nked
to P
P an
d PP
As
if ap
prop
riate
(Sec
tion
75
agre
emen
ts in
Sco
tlan
d).
Plan
ning
Req
uire
men
ts:
• PP
from
MPA
for d
rillin
g of
initi
al
PRO
DU
CTIO
N w
ells
as a
ny
asso
ciat
ed w
orks
and
site
upg
rade
s• E
IA• P
ossi
ble
Sect
ion
106
plan
ning
ob
ligat
ions
link
ed to
PP
• PPA
s if
appr
opria
te.
Plan
ning
Req
uire
men
ts:
• PP
from
MPA
for l
arge
sc
ale
com
mer
cial
dril
ling
of
PRO
DU
CTIO
N w
ells
and
any
as
soci
ated
wor
ks o
r site
upg
rade
s (i.
e. c
onst
ruct
ion
of la
rge
scal
e pr
oduc
tion
infr
astr
uctu
re)
• EIA
• Pos
sibl
e Se
ctio
n 10
6 pl
anni
ng
oblig
atio
ns li
nked
to P
P • P
PAs
if ap
prop
riate
.
Plan
ning
Req
uire
men
ts:
• PP
from
MPA
(if f
urth
er
cons
ent
requ
ired
for c
hang
es to
the
deve
lopm
ent
stra
tegy
from
th
at c
onse
nted
in P
P fo
r st
age
5)• P
ossi
ble
EIA
con
nect
ed to
PP
dep
endi
ng o
n th
e ch
ange
s th
at h
ave
been
mad
e.
Oth
er R
equi
rem
ents
:• E
Ps d
ealin
g w
ith
envi
ronm
enta
l ris
ks•
WA
L ne
eded
whe
re w
ater
for
frac
king
ope
ratio
ns so
urce
d fr
om
grou
ndw
ater
/sur
face
wat
er• C
A C
ON
SEN
T to
dril
l thr
ough
co
al s
eem
s w
here
nec
essa
ry• W
ell E
xam
inat
ion
Sche
me
impl
emen
ted
to c
onfir
m W
ell
desi
gned
and
con
stru
cted
in
acco
rdan
ce w
ith in
dust
ry• N
otify
EA
of i
nten
tion
to d
rill
(or S
EPA
/NRW
)• N
otify
HSE
of w
ell d
esig
n an
d op
erat
ions
21 d
ays p
rior t
o dr
illin
g• H
SE C
onse
nt w
here
sig
nific
ant
alte
ratio
n of
wel
l nee
ded
• Fra
ckin
g Pl
an to
add
ress
the
risk
of se
ism
icity
subm
itted
to D
ECC
• F
rack
ing
cons
ent f
rom
DEC
C
(or S
cott
ish
Min
iste
rs).
Oth
er R
equi
rem
ents
:• P
EDL
Exte
nsio
n• O
nce
PP g
rant
ed th
e D
evel
oper
m
ust r
epea
t the
pro
cess
of
notif
ying
the
EA a
nd H
SE o
f dr
illin
g be
fore
bei
ng th
e gr
een
light
by
DEC
C• A
dditi
onal
ly H
SE C
onse
nt
wou
ld b
e ne
cess
ary
whe
re
the
Dev
elop
er w
ishe
d to
si
gnifi
cant
ly a
lter e
xist
ing
wel
ls.
Oth
er R
equi
rem
ents
:• P
EDL
Exte
nsio
n fo
r ful
l co
mm
erci
al e
xplo
itatio
n• A
gain
, onc
e PP
gra
nted
the
Dev
elop
er m
ust r
epea
t the
pr
oces
s of n
otify
ing
the
EA
and
HSE
prio
r to
drill
ing
befo
re
DEC
C g
ive
the
ultim
ate
gree
n lig
ht to
com
men
ce o
pera
tions
.
Oth
er R
equi
rem
ents
:• A
gain
, onc
e PP
gra
nted
the
Dev
elop
er m
ust r
epea
t the
pr
oces
s of n
otify
ing
the
EA a
nd
HSE
prio
r to
drill
ing
befo
re b
eing
th
e gr
een
light
by
DEC
C.
Oth
er R
equi
rem
ents
:• R
ehab
ilita
tion
of a
rea
in
acco
rdan
ce w
ith
PP c
ondi
tions
• Wel
l Aba
ndon
men
t in
ac
cord
ance
with
• H
SE s
tand
ards
• Aft
erca
re o
f the
site
in
acco
rdan
ce w
ith
PP c
ondi
tions
.
Oth
er R
equi
rem
ents
:• P
EDL
to s
earc
h fo
r, an
d ex
trac
t sha
le g
as. (
PED
L mirr
ors s
tage
s –
ther
efor
e PE
DL e
xten
sions
will
be
nece
ssar
y)• P
rope
rty
Righ
ts –
neg
otia
te w
ith L
ando
wne
rs to
pur
chas
e or
sec
ure
right
s (li
cens
e op
tion/
excl
usiv
ity a
gree
men
t or a
gree
men
t for
leas
e)
over
land
to fa
cilit
ate
the
proc
ess.
Acr
onym
sPE
DL
– Pe
trol
eum
Exp
lora
tion
& D
evel
opm
ent L
icen
ceC
A –
Coa
l Aut
horit
yD
ECC
– D
epar
tmen
t for
Env
ironm
ent &
Clim
ate
Cha
nge
EA –
Env
ironm
ent A
genc
yEI
A –
Env
ironm
ent I
mpa
ct A
sses
smen
tEP
– E
nviro
nmen
tal P
erm
itH
SE –
Hea
lth
& S
afet
y Ex
ecut
ive
LPA
– L
ocal
Pan
ning
Aut
horit
yM
PA –
Min
eral
s Pl
anni
ng A
utho
rity
SEPA
– S
cott
ish
Envi
ronm
ent P
rote
ctio
n A
genc
yN
RW –
Nat
ural
Res
ourc
es W
ales
PED
L –
Petr
oleu
m E
xplo
ratio
n &
Dev
elop
men
t Lic
ence
PP –
Pla
nnin
g Pe
rmis
sion
PPA
– P
lann
ing
Perf
orm
ance
Agr
eem
ent
WA
L –
Wat
er A
bstr
actio
n Li
cenc
e
Expl
orat
ion
Onc
e PE
DL
secu
red,
Dev
elop
er
iden
tifie
s lo
cati
ons
wit
hin
licen
ce a
rea
wit
h hi
ghes
t po
tent
ial f
or s
hale
gas
and
ex
plor
ator
y dr
illin
g un
dert
aken
.
1 –
3 Ye
ars
App
rais
alD
rilli
ng o
f wel
ls t
o as
sess
co
mm
erci
al v
iabi
lity
of g
as
prod
ucti
on. G
as p
rodu
ced
at t
his
stag
e ca
n be
use
d fo
r sm
all-
scal
e co
mm
erci
al
elec
tric
ity
gene
rati
on.
1 –
2 Ye
ars
Init
ial D
evel
opm
ent
Firs
t pr
oduc
tion
wel
ls
cons
truc
ted
as w
ell a
s ne
cess
ary
infr
astr
uctu
re to
faci
litat
e th
e sa
le o
f sha
le g
as. E
arly
sal
es
reve
nue
gene
rate
d an
d pr
ojec
t ta
ilore
d to
max
imis
e pr
oduc
tion
.
2 –
3 Ye
ars
Full
Dev
elop
men
t & P
rodu
ctio
n D
rillin
g of
pro
duct
ion
wel
ls a
cros
s lic
ence
are
a an
d co
nstr
uctio
n of
co
mm
erci
al p
rodu
ctio
n fa
cilit
ies
and
infr
astr
uctu
re fo
r lar
ge
volu
mes
of s
hale
gas
.
Ove
r 20
Year
s
Aba
ndon
men
tW
ell p
lugg
ed a
nd
surr
ound
ing
area
rest
ored
in
acco
rdan
ce w
ith
pres
crib
ed
stan
dard
s.
8
Pinsent Masons | Shale Gas & Fracking Toolkit Part 6
Bob RuddimanSector HeadEnergy & Natural ResourcesT: +44 (0)1224 377 925M: +44 (0)7767 316970E: [email protected]
Paul RicePartnerHead of Client RelationshipsEnergy & Natural ResourcesT: +44 (0)20 7490 6282M: +44 (0)7798 617709E: [email protected]
Neil Whitaker Legal DirectorPropertyT: +44 (0)113 294 5214M: +44 (0)7885 514093E: [email protected]
Kevin Boa PartnerPropertyT: +44 (0)20 7490 6529M: +44 (0)7989 575025E: [email protected]
Alicia FooPartner Property Dispute ResolutionT: +44 (0)121 260 4024M: +44 (0)7747 791215E: [email protected]
Melissa ThompsonLegal DirectorProperty Dispute ResolutionT: +44 (0)20 7490 9675M: +44 (0)7771 345814E: [email protected]
Contacts
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