NEWS: Richard Aird involved in case under the Petroleum Act 1998

Posted On: 09 February 2011

Richard Aird, Advocate, has recently been involved with a case under the Petroleum Act 1998 in which he acted for a substantial landowner who obtained compensation. Here are some of his comments regarding the issues involved.

The New Gold Rush: onshore exploration for methane and shale gas under the Petroleum Act 1998

Who can remember those mountainous piles of red shale which were once a feature of the central belt of Scotland but have now been landscaped, no doubt by local authority fiat, to appear as improbable grass covered hills? Although the means of winning coal bed methane, shale and unconventional gas (gas which cannot be extracted by conventional means) have been transformed since shale ceased to be commercially mined in Scotland, the possibility that there are economically viable reserves of these important resources has not diminished. The search is on and most significant landowners in areas where these resources are likely to be found have been contacted by potential developers or may expect to be so in the coming months.

A complicated balance of the interests of the State, the developer and the landowner is struck by the Petroleum Act 1998, under whose provisions onshore licences are granted to the developer and rights to compensation for the landowner are established. In Bocardo SA v Star Energy (2010 WL 2898019) the Supreme Court has recently given detailed consideration to the appropriate amount of compensation which may be obtained. Compensation is to be founded on the value lost to the landowner rather than on the basis of gain for the developer: in other words the 'value to the owner' and the 'no scheme rule' apply. How these prinicples are to apply in a given case will, of course, require careful consideration.

The procedure under the Petroleum Act 1998 has been described as 'a very long and complicated process' (PB Petroleum Developments Ltd v Ryder & Ors EGLR 223). These delays are undoubtedly a factor which can effectively be deployed by a landowner to 'up the ante' against an impatient developer. However other features of the statutory scheme, such as unusual provisions for expenses, discourage unnecessary applications to the courts: In terms of section 7(4)d a landowner may obtain legal and other expenses from the developer unless an unconditional offer is declined for a greater sum than the compensation a landowner may expect to obtain will result from injurious affection. The stakes are likely to be high and a detailed examination of the proposed scheme should be carried out which focuses on how each activity and potential use of the estate may be affected. In other words this is one of those areas where experience of the legislation counts and where close co-operation between the landowner, his agricultural advisor and legal team are likely to pay large dividends.