From Eversheds

2013 was a year in which the UK environmental lobby began to mobilise against the UK unconventional gas industry. The autumn saw the establishment of a protest camp at Barton Moss in Greater Manchester in response to exploratory drilling for coal bed methane by Igas Energy and the camp continues. Some people in local communities have opposed exploratory drilling out of fears it will eventually lead to hydraulic fracturing for shale gas. Civil disobedience and direct action protest activity has taken place.

However, it is not only direct action and civil disobedience which has made the headlines. In October 2013, Greenpeace launched a campaign called the “legal block” to exploit what was reported at the time as a ‘legal loophole’. Under English law, a person’s ownership of land on the surface also extends to the land beneath. Even though coal, gas and oil in the ground is owned by the Coal Authority and the Crown respectively, under English law, the permission of the landowner is required to drill through or under their land in order to get to it and exploit it.

Greenpeace has encouraged people to actively proclaim their opposition to drilling and create a patchwork quilt of non-consenting landowners to frustrate plans to carry out drilling. The exploitation of shale gas reserves by hydraulic fracturing typically requires the drilling of very long and deep (up to a mile or more) horizontal wells which spray out from the central drilling pad. On 3 February, it was reported five landowners, including Viscount Cowdray, have written to Ed Davey, the Energy Secretary, to say that they do not give permission for any drilling beneath their land, which surrounds a proposed exploration site near Fernhurst, in West Sussex. Could this sort of activity frustrate the UK shale play?

First, we need to properly examine the legal arguments behind the Greenpeace campaign. In the Supreme Court case of Bocardo SA -v- Star Energy UK Onshore Limited, the energy company who undertook drilling beneath land owned by one of Al Fayed’s group companies without their consent was only ordered to pay very nominal damages for trespass. Al Fayed was seeking many millions in damages, essentially arguing that he was entitled to a share of the profits from the exploitation of oil reserves under his land. He was wrong on that. The court held that they would only be entitled to nominal damages which would otherwise have been payable as “land compensation” if Star Energy had followed a procedure for acquiring ancillary land rights for the purposes of exploiting petroleum under the Mines (Working Facilities and Support) Act 1966. In that sense, the case which is being held out by Greenpeace as potentially blocking the exploitation of shale gas in the UK was in fact a clear victory for the energy company!

However, in reaching its decision the Supreme Court quite rightly reached the conclusion that Bocardo SA did own the land beneath the surface and endorsed, as good law, the maxim ‘cujus est solum, ejus est usque ad coelum et ad inferos’ (to whom belongs the soil, his it is, even to heaven and to the middle of the earth). The drilling and extraction of oil had been taking place under Bocardo’s land for some time before they realised, and therefore they missed the opportunity to try and seek an interim injunction restraining the drilling from taking place in the first place.

The primary remedy available to a landowner who suffers trespass is normally an injunction to restrain the trespass. This could therefore, as some legal practitioners suggested at the time, prevent or halt exploratory drilling in its tracks insofar as lateral wells passed under the land of third parties who did not consent and they manage to obtain an injunction. An injunction is an equitable remedy and therefore in deciding whether to grant one the court exercises its discretion. It is always open to a court to decide that an injunction is not appropriate in the given circumstances, and that the losses suffered by the victim of the trespass can be adequately compensated in damages. However, predicting whether, depending on the specific circumstances of a future case, a court would grant an injunction to either prevent drilling in the first place or halt it in its tracks rather than awarding damages is incredibly difficult. The Bocardo case did not raise the question of an injunction, so there is no specific guidance in this sort of context. Furthermore, from a corporate responsibility and reputational perspective, companies involved in exploratory drilling may be unlikely to press ahead with drilling regardless if they knew it would pass under or through land of an owner who clearly did not consent. A court might take a negative view of conduct in future legal claims if a company did deliberately trespass. In January, it was reported that in the coming months the government will consult on proposed changes to the law of trespass to address this problem, but there is no detail available on the content of those proposals at this stage. Without those changes, could a patchwork of non consenting landowners around a drill site frustrate the overall process? That seems very unlikely, although it may cause some delay.

Bocardo and the earlier (and more relevant) case of BP -v- Ryder 1987 make it clear that a specific statutory procedure is available to exploration businesses to acquire rights compulsorily, which involves an application to the Secretary of State, who in turn will refer the matter down a court process. That procedure and court process is only required if the landowner(s) does not consent first. Whilst this is a little used process, BP -v- Ryder 1987 is a directly relevant reported case where this process has been used successfully regarding Wytch Farm in Dorset. This procedure is available to exploration businesses which have a petroleum extraction licence (which companies involved in exploratory drilling for shale gas will have). Essentially, four conditions must be satisfied to acquire ancillary rights to drill under a third party’s land; (i) the rights must be sought for the purposes contemplated by the petroleum extraction licence (ii) that efficient exploitation of the reserves would be unduly hampered without the rights (iii) the grants of rights is expedient and in the national interest and (iv) that it was not reasonably practicable to obtain the rights by private arrangement (for example because the person with the power to grant the rights unreasonably refused to grant the rights).  On the national interest point, many practitioners will be confident that the exploitation under a licence, pursuant to existing legislation relating to the exploitation of petroleum, would satisfy this test. Parliament has enacted the Petroleum Acts and therefore it must be in the national interest for rights to be granted to facilitate the activities contemplated by those Acts.

There is a challenge for the industry on timescales. In BP -v- Ryder 1987 prior to commencement of the formal process there would have been a period of negotiation. Then there was a 20 month long procedure from submission of the application for the ancillary rights to the Secretary of State to the final court decision. Yet more time might be added in future cases if there is an appeal. However, with a statutory procedure able to underpin sensible discussions between the industry and affected landowners, rights will be acquired in a way similar as they are for electricity transmission cables, gas pipelines, telecoms etc. Namely, by agreement for a sensible price between the company or, if no agreement can be reached, through a statutory or court process. The sensible use of consultants such as surveyors and lawyers and a considered land rights strategy can, if managed properly, avoid the need for court action and is likely to do so in the vast majority of cases.

The grant of an ancillary right through the courts entitles a landowner to compensation, but only a fairly nominal amount based on any loss in value to their land as result. Although many may be led to believe that there is a loss in value to their property because a well is drilled, horizontally, one mile beneath the surface, the inescapable valuation reality is that such a loss is little or nothing. Could a resident living in London say their house has lost value because a new underground railway line is being built underneath it? Of course, they couldn’t.

Many members of the public may not be familiar with the processes and negotiations which are part of delivering energy, transport and telecoms infrastructure in the UK, but with the UK Government still committed to supporting the development of the industry on shore, they soon will.

There would be costs risks involved for reluctant landowners if a company undertaking drilling made an up front written offer of compensation at the outset. If the landowner refused the offer and forced the company to follow the statutory court process at great expense, they may end up paying tens of thousands of pounds for their own legal costs if the sum they are awarded at court does not exceed the offer made by the company at the outset.

For more information contact:

David Feist

Partner

Tel: +44 121 232 1330

[email protected]

Elizabeth Shepherd

Partner

Tel: +44 161 831 8215

[email protected]

PHOTOS: www.carbonbrief.org

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