Choose Site

LawFlash

Operators Seek Higher Seismic Limits in UK Fracking Industry

July 19, 2019

The UK hydraulic fracturing industry has been in the spotlight recently as operators push for higher seismic limits in using the technique to produce shale gas.

UK operator Cuadrilla announced last week that it will return to hydraulic fracturing and flow testing of natural gas at its flagship Lancashire site in an attempt to gather enough data to persuade policymakers and regulators that rules on seismicity should be relaxed.

Hydraulic fracturing, also known as “fracking,” consists of injecting liquid and materials at high pressure to create small fractures within tight shale formations that otherwise have insufficient permeability for oil and gas to flow. This technique, used in the United States for more than 60 years, has transformed the US oil and gas industry by dramatically increasing the production of shale gas in previously inaccessible reserves.

The United Kingdom has promising shale reserves, but the use of hydraulic fracturing techniques to exploit these reserves is under the scrutiny of the Oil and Gas Authority (OGA), which regulates the UK oil and gas industry. Before any shale operation can begin in the UK, operators must pass rigorous health and safety, environmental, and planning permission processes.

First, an operator must obtain a petroleum exploration and development licence (PEDL) from the OGA. The operator also needs the landowner’s permission, planning permission from the local authorities (which will seek views from the local community), and environmental permits.

If hydraulic fracturing is proposed, the operator is required to undertake detailed geological studies and submit a hydraulic fracture plan (HFP) setting out how it will control and monitor the fracturing process and assess the risk of induced seismic events. The UK’s Department for Business, Energy and Industrial Strategy (BEIS) will issue a hydraulic fracturing consent (HFC) only if 13 conditions are met and BEIS is otherwise satisfied that it is appropriate. The conditions relate to a variety of environmental and social factors, including emissions and community benefits and the financial resilience of the operator.

Control over the risk of induced seismicity is based on a real-time “traffic light system” under which the operators must suspend work if they trigger a seismic event of a magnitude of 0.5ML on the Richter scale or above. This magnitude level is well below what can be felt at the surface, and is below levels permitted for fracking in the United States. This has led UK operators, such as Cuadrilla, to push for review of the current limits. Morgan Lewis recently acted for US investor Alpha Energy in its acquisition of Third Energy’s onshore gas exploration and production asset, one of the few entities that applied for an HFC in the UK. UK regulations do not impose any prior requirements for approval of a change of control of an oil and gas licensee, but they do grant the OGA substantial oversight, i.e., the power to require a further change of control, and failing that, a power or revocation of the license. In the event of a change of control, the parties may request comfort that the OGA does not intend to exercise its power. The OGA policy requirement is that the licensee should be able to demonstrate that the change of control will not prejudice its ability to meet its license commitments, liabilities, and obligations.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

London
Olivier Chambord
Tomasz Woźniak
Nicholas Moore
Allison Soilihi