Environmental law: Drills, spills and bellyaches
30 September 2013 | By Natalie Stanton
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Shale gas extraction is the hot environmental issue of the moment, offering great opportunities but meeting stubborn opposition
Few legal issues literally make the earth move, but fracking is one. As the environmental controversy du jour, everyone from Yoko Ono to the Church of England has stuck their oar into the £1trn (or thereabouts) question – should we use hydraulic fracturing to recover gas and oil from shale rock?
Few people need less convincing of the benefits of fracking than energy lawyers, who are preparing for an onslaught of work if and when shale gas extraction in the UK progresses from the exploration phase to full-on production.
It looks as if that day is not too far off, now Prime Minister David Cameron has introduced huge tax breaks for the fracking industry, offered incentives to local communities affected and established the Office of Unconventional Gas and Oil. The plan is to make the UK the “most generous” regime for shale gas in the world.
Bracewell & Giuliani partners Julian Nichol and Darren Spalding note: “The Government has set up a new department for gas and oil to ensure developers have access to a one-stop-shop for fracking. The industry is young, but the Government is behind investment and the developers will pile in.”
Bracewell has taken quite a gamble on the shale gas industry booming in the UK. In January the Houston-based firm announced it was launching an energy practice in the City, with a focus on shale gas.
It seems like a sensible move.
“The US has a mountain of work to do with shale,” say Nichol and Spalding. “Everyone is waiting to see whether a similar thing could happen here.”
Across the pond, where there are more than 500,000 natural gas wells, energy lawyers have (metaphorically speaking) struck gold. According to data from Thomson Reuters, in 2008 there were 21 shale asset acquisitions in the US, raking in a total of $9.4bn (£6bn). By 2011 this had grown to 34 deals, with a total value of $17.31bn, before dropping back to 30 deals with a value of $7.55bn in 2012.
The impact on Bracewell’s bottom line is substantial. In 2012 its net income increased by 49.1 per cent, while average profit per equity partner jumped 42 per cent to $1.45m.
A number of US firms – particularly those with Texas roots such as Baker Botts, Vinson & Elkins and Akin Gump Strauss Hauer & Feld – and a growing number of UK firms are poised to take advantage as the doors to the UK’s shale gas market are prised open.
That said, things have been slow to get going. To date, there has been only one major shale gas deal in this country since the moratorium on fracking was lifted in December 2012.
The deal, which saw British Gas owner Centrica take a £160m stake in the Bowland exploration licence in Lancashire held by Cuadrilla Resources, was announced in June. Norton Rose Fulbright advised long-term client Centrica while Allen & Overy won its first mandate from Cuadrilla. Energy service provider AJ Lucas, which also sold a Bowland stake to Centrica, hired five-partner London boutique Peachey & Co.
“There are a number of people on the outside looking in at the legal profession who think we’re busy with shale work but it’s not yet the case,” say Nichol and Spalding. “There are teething issues with the UK shale industry, but we expect it to start cranking forward.”
Those on both sides of the fracking frenzy have their hopes pinned on the Department of Energy and Climate Change’s (DECC) 14th onshore oil and gas licensing round, which is now under way. The results will determine how rights to drill new areas will be divvied up between energy companies.
Friends of the Earth legal adviser Jake White says: “It’s unlikely the DECC would be able to defend a decision not to award more licences. At that level, I’d be surprised if we won. At site level there’s more scope for courts to hold regulators to legal obligations.”
In fact, White has plenty of plans up his sleeve for after the results are announced in 2014.
“There’s always the potential for challenges,” he says. “Judicial review is the most likely route we’d go down.”
Other than that, he explains that “there are tax breaks for shale gas operators. If it’s not notified to the Treasury it’s contrary to EU law, which means it’s unlawful state aid. We’re seeking to influence decisions through legal arguments about subsidies for tax breaks. There’s also the possibility of making private law claims, such as local people claiming nuisance or damage to property.”
World of energy
While the fracking debate rumbles on in the UK, energy lawyers have projects in foreign climes to keep them ticking over.
“Countries such as Poland are increasing the amount of shale gas they produce,” explains Norton Rose Fulbright partner Caroline May.
China and Saudi Arabia are also planning to develop their shale gas industries.
As the Government and environmentalists in the UK lock horns on shale gas, one thing’s for sure – energy lawyers are sitting on a wealth of new instructions, just waiting to be tapped.