An anti-fracking campaigner claimed in the High Court today that the government had acted unlawfully when it gave IGas more time to drill for gas near his home in Cheshire
Benjamin Dean argued that the Energy Secretary had no power to extend the initial term of the company’s exploration licence in 2016 for another two years. He asked the court to quash the extension.
The government defended the decision arguing that the extension of licences was accepted practice.
If the case goes against the government, IGas’s licence could, theoretically, be at risk.
There could also be implications for another 10 licences across England which were similarly extended at the same time.
Petroleum Exploration and Development Licences (PEDLs) give oil and gas companies the exclusive right to explore for hydrocarbons, subject to planning and environmental permissions.
PEDL189 at the heart of this case was issued in 2008 to Dart Energy (West England) Ltd, later taken over by IGas. Under the conditions of the licence, the initial term for exploration should have ended after five years in 2013.
But the government extended the initial term for another three years to give the company more time to carry out an agreed exploration programme. A further two years were added in 2016.
Licence or contract?
Today’s case, a judicial review at the Royal Courts of Justice, centred on whether in law a PEDL was a licence or a contract.
David Wolfe QC, for Mr Dean, argued that a PEDL was a statutory licence. He said the statute allowed the Secretary of State to impose conditions on PEDL189 and vary them – but only in specific circumstances. He said the conditions at the time did not allow for a variation to the length of the initial term and so the Secretary of State had no right to make the extension.
Richard Palmer, for the Secretary of State, argued that the PEDL was “in substance and form a contract” and the terms could be varied by agreement between the parties, like any other contract.
“Private agreement would undermine the directive”
Dr Wolfe said that PEDL licences were issued under an EU regime, the hydrocarbon licensing directive, designed to create an open, transparent and competitive application process.
He said the licence application made it clear that if companies did not complete the work by the end of the initial term they would lose the licence.
“What is contemplated by the Secretary of State here is entirely antithetical to those requirements. It would completely undermine the operation of the directive if a licence which had been advertised, applied for and granted on one basis could later be varied simply by private agreement between the parties.”
Dr Wolfe said applicants needed to take care not to promise more in their work programme than they could realistically deliver because if they did not complete the work programme in time the licence would expire.
“The carefully calibrated mechanism would be entirely undermined if, in practice, the Secretary of State could and might extend the initial term despite the licence holder failing to complete their work programme in that period.”
He added that it was not good enough to rely on private knowledge that the term could be extended.
“Industry well aware of potential for variation”
But Mr Palmer said it was well known in the industry that the duration of an initial term could be extended.
The court received a statement from Simon Toole, the former Director of Regulation at the Oil & Gas Authority, the agency which now awards licences. He wrote:
“The PEDL licensee and others would have been well aware of the potential for variation of the Licence by Deed and I am certain that this potential for risk mitigation would have been seen as an important part of the system that attracted companies and persuaded them to accept a licence”.
Mr Palmer added:
“To spell out that in this country contracts can be varied is artificial in the extreme”.
He said the ability to vary the initial period of a PEDL allowed flexibility where a licence-holder could not complete work for reasons beyond its control. He said:
“There is no interest at EU level to create that inflexible result.”
Mr Dean had asked IGas how it would complete the work programme by the new end date of 2018. The company’s solicitors said the work was expected to be finished by mid 2019-mid-2021. They added:
“While this falls outside the current expiration of the initial terms, our client would apply to the Oil and Gas Authority, as it has in the past, for an extension of the initial term … to enable our client to complete the work programme within a timeframe that enables our client to retain PEDL189.”
Dr Wolfe argued that previous court cases had already held that oil and gas licences were not contracts. Mr Palmer argued that these cases were not relevant.
Dr Wolfe added that in issuing oil and gas licences the Secretary of State was acting on behalf of the crown.
“If this is a contract, it is a contract between Her Majesty and the interested party [IGas]. The Secretary of State has no common law power to vary an agreement to which he is not a party.”
He said if a PEDL were a contract it would expose the Secretary of State to damages – and this had not been parliament’s intention when passing the Petroleum Acts.
Mr Palmer responded that the legislation made the searching and boring for petroleum a matter of private law, contractually permitted by Her Majesty, and the contract could be amended.
- Mr Justice Holgate reserved judgement in the case. DrillOrDrop will report on his decision when it is handed down, in what is expected to be several weeks.