The New Infrastructure Act 2015 – Key Considerations for UK Petroleum

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In February 2015, the Infrastructure Act 2015 (the Act) came into effect, dealing predominantly with reforms around British transport and infrastructure planning controls.

Part 6 of the Act focuses on Energy and contains some important provisions affecting the UK Petroleum and Geothermal Energy market in relation to the following key areas:

UK Offshore Petroleum

On 24 February 2014, Sir Ian Wood’s UK Continental Shelf Maximising Recovery Review was published. This identified a number of key issues including the need for operators to focus on maximising economic recovery for the UK as well as pursuing their individual commercial objectives. This is seemingly the basis for section 41 of the Act which introduces an obligation on the Secretary of State to implement strategies to maximise the economic recovery of UK offshore petroleum, in particular through:

  • developing petroleum infrastructure and equipment; and
  • requiring petroleum licence holders, operators and infrastructure owners and persons planning and carrying out the commissioning of upstream petroleum infrastructure to collaborate.

Key takeaway: DECC is required to produce its first strategy by 12 February 2016. Until then, we will be in the dark as to the exact nature and scope of these strategies, but with oil prices still very low, improving financial efficiency should be high up on everyone’s list.


Levies

The Act gives the Secretary of State power to impose levies on companies who hold a licence for the exploitation of petroleum, the unloading and storing of gas or the storage of carbon dioxide. The amount of levy charged in a licencing period must not:

  • exceed the costs incurred by the Secretary of State in carrying out relevant functions relating to UK offshore petroleum (full list set out in Section 42(5) of the Act); and
  • be used to recover costs in respect of areas in which a charge is payable to the Secretary of State under the Gas and Petroleum (Consents) Charges Regulations 2013. This includes where a licensee makes an consent application to the Secretary of State in respect of a carbon dioxide appraisal and storage licence, a gas storage licence or a petroleum licence.

Key takeaway: We expect further details of such levies to be released in due course. In the meantime, licence holders should prepare for them and factor this uncertainty and potential increased costs into future budgets.


Deep-Level Land

Previously, a company drilling for petroleum or deep geothermal energy had to reach agreements with landowners to obtain rights of access, even where works took place far below the surface. However, from 12 February 2015 such companies now have a statutory right to use the land under Section 43 of the Act.

There are certain conditions for a company to obtain this statutory right:

  • The land being used must be at least 300m below the surface (termed “Deep-Level Land”);
  • Such Deep Level Land must be onshore in England and Wales or beneath waters other than those adjacent to Scotland (a “Landward Area”); and
  • The purpose of the works must be for the exploitation of petroleum or deep geothermal energy, including searching, feasibility studies, preparing for exploitation and decommissioning.

However, the Act does allow for work performed within a Landward Area to exploit resources outside a Landward Area. It is therefore possible for a company to benefit from this statutory right when drilling from an onshore point in England into a resource in offshore Scotland.

The types of uses permitted under the Act are varied and include drilling, boring, fracturing, installing and using wells and extracting substances through the wells. Through this use, the Act permits companies to leave the land in a different state than it was before.

There are two limitations to this statutory right of use:

  • Companies must still obtain all necessary planning permissions and environmental permits, and comply with statute relating to the control of pollution; and
  • Landowners will not be liable in tort for any loss or damage companies suffer from using the Deep-Level Land unless the loss or damage is attributable to a deliberate omission by that landowner.

So what is in it for the landowner who seemingly gets little say as to whether his/her land is exploited? The only real consideration is that the Secretary of State may order companies to:

  • make payments to the owners of the land and other interested parties; and
  • notify all concerned parties of their right of use, before it is exercised.

Key takeaway: What is seemingly great news for petroleum companies who can do away with protracted negotiations for rights of access is bad news for landowners whose right of quiet enjoyment of their land is given a backseat in exchange for a compensation package which is yet to be clarified.


Onshore Hydraulic Fracturing

Under Section 50 of the Act, the Secretary of State may only issue a consent to drill a well in respect of an onshore licence if that consent:

  • prohibits associated hydraulic fracturing at a depth of less than 1000 metres; and
  • requires a hydraulic fracturing consent for associated hydraulic fracturing at a depth of 1000 metres or more (a "Hydraulic Fracturing Consent").

Before the Secretary of State may issue a Hydraulic Fracturing Consent:

  • an environmental impact assessment must be carried out;
  •  independent inspection of the well’s integrity must be made;
  • methane level monitoring must be in place;
  • the area must not be within a protected groundwater area (or other protected area); and
  • the substances to be used must be approved by the relevant environmental regulator.

Key takeaway: As fracking continues to receive mixed press, the UK Government has reaffirmed its intention to control the use of fracking by placing restrictions on fracking above 1000m and more stringent controls on fracking below 1000m. As we come up to the election period you can’t help but think that this may be politically, rather than environmentally, motivated.

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