Trying to follow the constant stream of press releases, government and EU consultations, guidance and debate regarding hydraulic fracturing (also referred to as “fracking”) can be tricky, but the issue in the UK remains as topical as ever.

Fit to Frack Report

The BBC reported on 13 March 2014 that research commissioned by leading wildlife and countryside groups has resulted in the issue of a report “Are We Fit To Frack?” which was launched by 6 organisations including the National Trust and the RSPB. This report contains proposals to limit the potential impact of hydraulic fracturing on the environment and includes setting up so-called “no frack zones” around the UK’s most sensitive conservation areas. The RSPB is stating that they would like the country’s most special sites to be “frack free”. However, the trade body which represents the onshore oil and gas industry states that many of the recommendations in the RSPB and Wildlife Trust report are already being adopted and current regulations are strict enough to protect the environment.

The BBC went on to say that the Chief Executive of the UK Onshore Operator’s Group (“UKOOG”) commented that the report contained a number of critical inaccuracies. He highlighted that the industry currently has to comply with 17 European directives, has to apply for up to 9 separate environmental permits and to reach binding agreements on noise and other operational and local social issues. His view was that the further restrictions suggested in the report are not needed.

Shale Gas Estimates

This topic can be set against the backdrop that large swathes of the UK have already been opened up for energy exploration, but these are so far concentrated in Lancashire, Cheshire, Yorkshire and Sussex. The government is considering expanding this to potentially more than half of the UK, an expansion which is set to take place this summer in the next round of onshore oil and gas licensing. The BBC reports that, ahead of this, the Department of Energy and Climate Change (“DECC”) has published an environmental study into the scale of UK shale reserves and its potential impacts, which is out for public consultation until 28 March this year.

Already, estimates provided by Cuadrilla (currently the only company in the UK to have used hydraulic fracturing in its test wells) show gas resource estimates in the north west of England are likely to need to be increased significantly upwards. A geologist with the company said there is 330 trillion cubic feet of gas in place in Cuadrilla’s licence area alone, which is 50% more than previous estimates. Cuadrilla is now in the process of expanding its operation in Lancashire, announcing recently that it was seeking planning permission for 2 new sites at Roseacre Wood and Preston New Road with plans to drill and hydraulically fracture 4 exploration wells at each site.

Permitting Issues

However, recent reports by Bloomberg estimate it takes 6 months to obtain a permit for hydraulic fracturing in the UK while in Texas it only takes 7 days. The delay in permitting in the UK helps explain why applications for a permit to frack in the UK are still virtually non-existent, despite the known shale gas reserves and the tax breaks offered by the government.

Amidst the confusion regarding permitting requirements, the UK government has been trying hard to clarify what is required to carry out hydraulic fracturing in the UK. In December 2013 DECC published a regulatory road map for onshore oil and gas operations (including shale gas) which sets out the permits and permissions that developers need to obtain prior to drilling for onshore oil and gas. There are separate documents for each of England, Scotland, Wales and Northern Ireland to reflect the regulatory differences between the jurisdictions.

Investment Incentives

In June 2013, HM Treasury published Investing in Britain’s future a plan which sets out the government’s long-term strategy to build, repair and renew key infrastructure in the UK. Paragraphs 4.32-4.41 of the Plan indicated the actions that the government would take to support shale gas development including:

• July 2013 – New guidelines on the permitting and planning regime for shale gas developments to clarify the process for approving development.
• July 2013 – A consultation on tax incentives to encourage exploration of potential shale areas.
• An industry-led scheme of community benefits so that communities are rewarded for their part in the UK’s energy sector under which operators pay:
o £100,000 in community benefits at exploration phase, per well-site where hydraulic fracturing occurs; and
o 1% of revenues from production wells to communities that host them.

In general, the UK has been taking measures to encourage exploration of shale gas. In January 2014, David Cameron announced that local authorities would be able to keep 100% of business rates that they collect from shale gas sites. This is an increase from the 50% of business rates that local authorities previously understood they were allowed to keep. The same month, UKOOG confirmed it had launched a pilot scheme at selected shale gas sites in the UK to consult on how to share out the £100,000 community benefit scheme that was announced in 2013 (see above) which rewards communities hosting shale gas exploration sites. UKOOG will be consulting stakeholders in early 2014 on how the incentive of 1% of revenue from production wells that was also announced could be shared with local communities.

Summary

In summary, the pendulum seems to be swinging towards the pro-fracking side at present, but watch this space for further developments in the ongoing UK hydraulic fracturing saga.