Shale Gas Update: A Clearer Roadmap for UK Exploration

by Reed Smith
Contact

The UK Government has recently published further details on a package of tax, planning and community benefits to help kick-start shale gas exploration in the UK. These measures will be welcomed by those in (or looking to enter) the industry, since they are generally favourable and increase the levels of clarity and certainty – pre-requisites for an industry which relies on long-term investment.

The relevant documents published last week are a Government consultation regarding a specific tax regime for shale gas, and guidelines to local authorities for considering planning requests for onshore oil and gas exploration and extraction.

These measures have followed soon after studies showing that the UK’s shale gas resources are much larger than previously anticipated (as covered in a previous alert), and can be seen as the “next step” in developing a thriving shale gas industry in the UK.

Tax Proposals

The UK Government has pledged to create the world’s most generous tax regime for shale gas. Its main proposal is to cut the tax on a portion of the shale production to 30 per cent, compared with the 62 per cent currently paid by most oil and gas operators in the UK. It also proposes to maintain the time value of companies’ losses for up to 10 years, so that their value does not diminish before they can be offset against future profits.

Although these proposals are still part of a formal consultation process, they have been influenced by informal discussions already held with the industry. They will be warmly greeted by shale gas operators, and we do not expect them to change significantly before they are introduced next year. The main development is likely to be announcing the amount of the production income exempt from the 32 per cent supplementary charge to tax, which will reflect a proportion of the capital expenditure incurred on a drilling and extraction site. The Government states that this amount may need to be higher during the industry’s exploration phase, but it is seeking further views on the economics of shale gas projects before reaching a decision.

The Government recognises that shale gas is a new industry which will require substantial expenditure before profits are made. Companies will bear significant risk during the exploration phase and experience high on-going well intervention costs and longer payback periods than for conventional onshore oil and gas developments. The Government has therefore proposed a tax regime for shale gas which is broadly consistent with the approach taken by it on the challenging oil and gas fields in the North Sea. That approach has been credited with extending the economic life of those fields.

The consultation is open for responses until 13 September 2013, and the Government will publish a summary of responses to this consultation later in the year.

Planning and Community Proposals

The shale gas industry regards planning permission and public support as bigger obstacles to shale gas exploration in the UK than tax issues.

The recently published guidance for local authorities on the planning regime for onshore oil and gas should give the shale gas industry some transparency on the planning process that will be adopted. This guidance, in conjunction with the Environment Agency’s plan to streamline and simplify the environmental permitting processes for shale gas developments (and thereby reduce the average timeframe from 13 weeks to less than a fortnight) further indicates the Government’s push to develop the shale gas industry in the UK.

As part of the streamlining of the planning procedure, the guidance reiterates the National Planning Policy Framework position regarding information requirements for applications; these should be “proportionate to the nature and scale of development proposals and reviewed on a frequent basis”, and supporting information should only be requested if it is “relevant, necessary and material” to a particular application.

The guidance includes a flowchart, outlining the planning process that will apply for exploration. This flowchart is set out below.

(Source: Department for Communities and Local Government, Planning practice guidance for onshore oil and gas, July 2013)

An important aspect of the guidance is the separation between planning applications for exploration and those for extraction. It notes that exploration applications should be considered “on their own merits”, without taking into account “hypothetical future activities for which consent has not yet been sought”. Although this is likely to simplify the planning process for exploration, it does mean that a site that is granted planning permission for exploration will not be guaranteed planning permission for extraction.

However, the Government has sought to minimise this risk by emphasising the importance of oil and gas extraction to the UK economy. The guidance states that “great weight” should be given to the benefits of oil and gas extraction when local authorities are deciding whether or not to grant planning permission.

The guidance also indicates the roles that various bodies and government departments will have in the regulation of shale gas. As well as the Department for Communities and Local Government, which issued the guidance for local authorities, the Department of Energy and Climate Change is responsible for controls to mitigate seismic risks, the Health and Safety Executive is responsible for legislation concerning well design and construction, and the Environment Agency is responsible for environmental permitting.

Environmental Impact Assessments (EIAs) are also covered by the guidance; it states that EIAs will only be required if “the project is likely to have significant environmental effects”. Although the guidance confirms that an EIA will not always be necessary, the Government is keen to ensure that any extraction operations are subject to mitigation measures to prevent, as far as possible, any adverse environmental impact of the operations. The guidance includes model planning conditions that local authorities can impose, such as prevention of water-system contamination, noise control and monitoring, and protection of wildlife, flora and fauna.

Conclusion

Notwithstanding the regulatory hurdles that shale gas exploration faces, the UK Government is giving every indication that it is encouraging shale gas exploration in the UK, as one of a number of potential electricity sources that can help the Government keep the lights on whilst lowering carbon emissions. The proposed tax regime should incentivise investment in the shale gas industry, whilst the planning guidance reiterates the Government’s position that the UK will need energy from a variety of sources if it is to keep consumers happy during the transition to a low-carbon electricity market.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Reed Smith | Attorney Advertising

Written by:

Reed Smith
Contact
more
less

Reed Smith on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.