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Unconventional oil and gas: decommissioning, site restoration and aftercare – obligations and treatment of financial liabilities

Published: 8 Nov 2016

Research into decommissioning, site restoration and aftercare – obligations and treatment of financial liabilities.

137 page PDF

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137 page PDF

2.6MB

Contents
Unconventional oil and gas: decommissioning, site restoration and aftercare – obligations and treatment of financial liabilities
4 Regulatory Practice Elsewhere

137 page PDF

2.6MB

4 Regulatory Practice Elsewhere

4.1 Introduction

This chapter examines what lessons can be drawn from the monitoring and regulatory frameworks of other countries and industries and how could these lessons be interpreted and applied in a Scottish context to support robust regulation and monitoring.

This chapter reviews the regulation of UOG development in Denmark, Poland and Spain, which, like Scotland, are all European countries with the potential for emerging UOG industries. This study also considers regulation of the offshore oil and gas industry in Norway, which has a mature regulatory regime for conventional oil and gas development.

Outside Europe, the regulatory regimes for UOG development in the United States, Canada and Australia have been reviewed. As these countries are federations, regulation is also carried out at regional level. As examples, the regulations in Pennsylvania in the US, Alberta in Canada and New South Wales in Australia have also been reviewed.

This chapter looks at how the following are regulated within in each country or jurisdiction:

  • licensing and regulation;
  • financial guarantees;
  • well integrity;
  • monitoring; and
  • decommissioning restoration and aftercare.

This chapter also looks at the regulation of other industries in Scotland (landfill and open cast coal mining) due to the similarities with UOG development in terms of the financial management of long-term liabilities and restoration requirements.

4.2 Other Countries

4.2.1 Denmark

Introduction

Denmark is one of the leading oil and gas producers in the EU. There are currently 19 producing offshore fields but no producing on-shore fields, either conventional or unconventional (ICLG, 2016). Mean estimated shale gas reserves onshore in Denmark are estimated to be 67 billion cubic metres (GEUS, 2014). However, exploration is at a very early stage (Milieu Ltd., 2015a) and consequently there are currently no proven reserves in Denmark.

Licensing and Regulation

There is no specific legislation applicable to UOG development in Denmark. Instead, petroleum exploration and production (both conventional and unconventional) are governed by the Subsoil Act. Under the Act, the state grants a licence through the Danish Energy Agency ( DEA) for surface investigations, exploration and production, each of which require a separate approval from the government. If the conditions on a licence are not met it may be revoked, however, this does not relieve the licensee of any of its obligations under legislation, the licence or any other applicable controls (Milieu Ltd., 2013a).

Areas for on-shore exploration and production are licensed under an open door procedure introduced 1997 under which operators can apply for licences (Danish Energy Agency, 2016a). To date, a single licence for on-shore hydrocarbon exploration has been granted in 2010 in northern Jutland. In 2012, the Danish Minister for Climate Change, Energy and Building introduced a "temporary pause" in the granting of new licenses for shale gas exploration pending an evaluation of the results of exploratory drilling in Jutland. The temporary pause was introduced to allow the Government to assess whether shale gas can be produced in a safe and environmentally sound manner (Danish Energy Agency, 2016a). A single unconventional (shale gas) exploratory borehole (Vendsyssel-1) has been drilled in Jutland in 2014. This confirmed the presence of natural gas, although not in economic quantities in this location, and the well has recently been plugged and abandoned.

In addition to DEA licences, several other permissions are required from Danish municipalities for surface operational activities. For onshore development, it is necessary to obtain construction permissions for processing plants, transportation, pipelines, etc.

Financial Guarantees

The Subsoil Act requires that to be granted a licence, an applicant must have the necessary technical expertise and the financial resources. Technical and financial capacity must be assessed and documented at each stage of development and licensees must provide adequate financial security in the form of insurance or financial guarantees (Danish Energy Agency, 2016b).

The licensee must provide either a parent company guarantee or bank guarantee The guarantor is liable for any obligations or liabilities under the licence to the Danish State and is also liable for damages under the Subsoil Act for making good any pollution or other environmental damage (Milieu Ltd., 2013a).

Well Integrity

The DEA has issued guidelines for drilling which set out the requirements for drilling of wells for exploration, development or production (Danish Energy Agency, 2009). Whilst the guidelines do not provide specific recommendations for well design and well construction, they do require that all wells must be cased and that casing design must ensure control of the well at all times (Milieu Ltd., 2013a). Plans for well drilling, including well design, must be approved by the DEA prior to commencement.

Monitoring

The DEA may ask the operator to supply information on baseline water quality prior to approval of drilling operations (Milieu Ltd., 2013a). The decision on the EIA for well Vendsyssel-1 also required that the operator monitor groundwater and methane at the site during operations for submission to the local council (Milieu Ltd., 2015a).

Decommissioning, Restoration and Aftercare

The Subsoil Act contains a provision in relation to decommissioning physical structures onshore and offshore. In the event that the state does not wish to take over the facilities, the licensee must remove the facilities in accordance with the details contained in the decision on decommissioning. A closure plan must be provided in due time prior to the anticipated closure of the facility (ICLG, 2016). Prior to the abandonment of a well, the hole must be plugged and abandoned according to procedures approved by the Danish Energy Agency (Danish Energy Agency, 2009). Decommissioned well sites are to be restored to their pre-development state except with the approval of the Danish Energy Agency (and other authorities as necessary).

4.2.2 Poland

Introduction

In 2011, the US Energy Information Administration estimated Polish shale gas reserves to be the largest in Europe; however, recent Polish estimates have been more conservative. The total number of licences for shale gas exploration has fallen from a peak of over 110 in 2012 to below 60 in early 2015. There has also been slow progress in exploration activities; attributed to high costs associated with legal and regulatory uncertainties and challenging geology. No shale gas production licences have so far been issued (Milieu Ltd., 2013b) .

Licensing and Regulation

The legal framework of geological and mining works in Poland, including onshore unconventional oil and gas, is regulated by the Polish Geological and Mining Act 2011 (Milieu Ltd., 2015b). The current licensing system is a two-stage process. The Ministry of the Environment publishes the list of areas that will be available for the licences in the next year. During the subsequent tender procedure, applicants are judged on their capacity to carry out the activities of exploration, prospecting or production of hydrocarbons in a way that ensures safety and protects human health and the environment. Applicants are also assessed on their technical capability, financial viability, and programme of works (Milieu Ltd., 2015b). Rights for exploration, development and production are all held under a single licence valid for between 3 and 50 years.

Financial Guarantees

Under to the amended Geological and Mining Act, operators are required to provide a financial guarantee covering the licence provisions and closure obligations prior to the start of operations (Mining Enterprise Liquidation (Decommissioning) Fund) (Cichocki & Młodawski, 2013). The fund may be held in a dedicated bank account or as bonds. In some cases, an additional guarantee may also be required to cover other potential liabilities (Milieu Ltd., 2015b).

Well Integrity

Well design in Poland is regulated under the health and safety provisions of the Geological and Mining Act 2011. These set out requirements for casing, cementing and well integrity and require that the well is constructed to withstand the highest possible pressures which may be encountered (Milieu Ltd., 2013b). However, there is no independent review of well integrity by a qualified third party and no monitoring of well integrity has been undertaken for existing developments (Milieu Ltd., 2015b).

Monitoring

At existing wellsites monitoring of both the surface and sub-surface potentially affected has been planned or carried out before and where appropriate, after fracturing operations.

Decommissioning, Restoration and Aftercare

As mining plant, UOG wellsites are to be decommissioned under the requirements of the Geological and Mining Law Act, which requires operators to secure or dismantle surface installations, devices and objects of the mining plan, to ensure that the hydrocarbon reserve is secured (presumably by plugging and abandoning the wells) and to undertake measures necessary to protect the environment and ensure restoration.

The "measures necessary for the protection of the environment" are not defined or specified by law. However, they must be identified in the "mining plant in liquidation operation plan" and agreed with the local authority. The measures to protect the environment may be specified also in the EIA decision for each development.

4.2.3 Spain

Introduction

Unconventional gas resources in Spain are found in the Basque Country and Cantabria. Whilst the resource has not yet been fully assessed, estimated shale gas reserves are about 1.4 trillion cubic metres. The development of unconventional gas activities is at a preliminary stage (Milieu Ltd., 2013c) and as of 2015 no wells have been drilled (Milieu Ltd., 2015c).

Licensing and Regulation

Spain does not currently have specific legislation to regulate unconventional gas operations but instead uses existing legislation for conventional hydrocarbons (Milieu Ltd., 2013c).

The framework applicable to upstream activities is contained in the Hydrocarbon Sector Act (Act 34/1998) approved by Royal Decree 2362/1976, which has been amended (most recently in 2015) in order to adapt it to EU directives and to update it to suit the current situation of the oil and natural gas sectors (ICLG, 2016).

Article 9 of Law 34/1998 distinguishes between exploration authorisations, exploration permits and production permits.

Exploration authorisations grant the holder the authority to carry out exploration work in free areas, meaning those geographical areas where neither an exploration permit nor mining concession is currently in force. Exploration Permits entitle the holder to investigate, on an exclusive basis, the existence of hydrocarbons within the granted area for a period of up to 6 years (which can be extended in exceptional circumstances). Once the exploration activity under the permit has concluded, the contracting company can either abandon the exploration programme or apply for a production permit. A production permit is valid for 30 years but can be prolonged twice for periods of 10 years.

Operators requesting a production permit are required to provide technical specifications in support of their application. They also need to provide a general mining development plan and investment programme, estimates of production profile and a plan to decommission and abandon the facilities once the concession has concluded as well as the plan to restore the environment. An environmental impact study is required for hydrocarbon extraction under certain criteria according to EIA legislation. An insurance guarantee covering all requested obligations is also mandatory.

Permits for exploration or production do not exempt the operator from any other authorisations that might be required by the works for example taxation, spatial planning and urban development, environmental protection, industry legislation or the safety of people and property.

Financial Guarantees

Under Article 9(4) of Law 34/98, prior to the start of any work for prospecting, exploration or production activities the operator is required to provide civil liability insurance with respect to damages to people or goods as a consequence of their activities. The amount of insurance required is not defined in law and is established on a case-by-case basis.

Under Article 21 of Law 34/98, operators requesting an exploration permit are required to provide a financial guarantee (in the form of a bank guarantee or in cash). The amount of the guarantee is fixed and should cover all obligations, being updated regularly to cover new permits or concessions granted. In the case of non-fulfilment of the investment commitment or any other obligation, the guarantee will be executed.

Operators requesting production concessions are required to submit a financial guarantee to secure any obligations deriving from the exploitation concession. Article 27 of the Law 34/98 requires the guarantee to cover dismantling and restoration amongst others. The size of the guarantee is currently determined based on a fixed amount per hectare.

Well Integrity

Before commencement of drilling, operators must submit a request for approval of the well design by the Ministry of Industry, Energy and Trade under Law 34/1998. Article 35 of Royal Decree 2362/1976 on hydrocarbons requires the use international standards for well equipment and installations.

The same provision requires operators to prevent leakage during drilling operations, to protect drinking water by casing and cementing the well and to isolate the rocks containing oil or gas. The operator must monitor downhole pressure annually in order to obtain information on the average pressure of the well and the reservoir. In wells where abnormal pressure levels are recorded, corrective measures must be taken in accordance with the standards of the oil and gas industry.

Monitoring

Recent decisions by the Ministry of Environment that require the environmental impact assessment of exploratory drilling include detailed evaluation of the quality of the surface waters and groundwater prior to extraction project activities in order to evaluate the future impact of the projected activities. However, this information does not address unconventional gas extraction involving hydraulic fracturing and does not impose monitoring obligations on operators (Milieu Ltd., 2015c).

Decommissioning, Restoration and Aftercare

The Hydrocarbon Sector Act provides that the termination of a mining concession will mean production will immediately revert to the State. This may require the operator to dismantle the facilities.

Under Article 15 of Hydrocarbons Law 34/98 the operator requesting an exploration or production permit needs to submit details of both environmental protection measures and a restoration plan. If the restoration plan is not completed then the financial guarantee will be executed.

Under the hydrocarbon legislation, closure of the well, the well site, and the abandonment of the installation must be approved by the competent authorities. Within two months of completion or abandonment of a well or deepening an existing one, the operator shall submit a report of end of production. The financial guarantee is maintained throughout the period of operation. The permanent abandonment of the facility requires the final on-site inspection by the competent authority, within a year, as well as the assessment of all the reports submitted by the operator.

4.2.4 Norway

Overview of Oil and Gas Activities

Norway has extensive conventional natural gas resources located beneath its continental shelf and is among the world's largest gas exporters and ships most of the produced natural gas through export pipelines to the European market (ICLG, 2016). Norway has no onshore production of hydrocarbons; however, it has a comprehensive and mature regulatory system for offshore exploration and production.

Licensing and Regulation

The main Government authorities responsible for the regulation of development of petroleum reserves are the Ministry of Petroleum and Energy ( MPE), the Norwegian Petroleum Directorate ( NPD), and the Petroleum Safety Authority (ICLG, 2016).

The main legislation related to oil and gas activities in Norway is the Petroleum Act of 1996 and the associated petroleum and safety regulations (ICLG, 2016).

The rights to the petroleum resources on the Norwegian continental shelf are vested in the Norwegian State. The regulatory regime for Norwegian petroleum activities is based on the licensing system, under which companies are granted rights to explore for and produce petroleum.

Financial Guarantees

Under the Petroleum Act, the MPE can require the provision of financial security from a licensee to cover their obligations towards the state and third parties arising from petroleum exploration and production activities. This is often accomplished using a parent company guarantee. The parent company guarantee is a non-negotiable document that will be a condition for any award or assignment of a Production Licence. Regardless of the state being the main beneficiary under the guarantee, third parties may direct claims for damages caused by pollution or for personal injury directly to the guarantor.

Well Integrity

The NORSOK Standard Well Integrity in Drilling and Well Operations D-010 Rev. 4 (NORSOK, 2013) was developed with broad petroleum industry participation by interested parties in the Norwegian petroleum industry. Sections 4 to 8 of the standard provide detailed information for well design during both exploration and production with the objective of ensuring well integrity.

Decommissioning

The Petroleum Act regulates the shutdown and disposal of facilities on the Norwegian Continental Shelf. Between two and five years prior to an installation ceasing production, operators are required to submit a decommissioning plan, including an Environmental Impact Assessment and plans for public consultation. The MPE makes the final decision on decommissioning in consultation with the NPD ( OGUK, 2016).

The decommissioning plan is a comprehensive study that addresses and evaluates different options for decommissioning, including removal, and also includes a comprehensive environmental impact assessment. NORSOK Standard Well Integrity in Drilling and Well Operations D-010 Rev. 4 (NORSOK, 2013) provides a detailed standard for well suspension, plugging and abandonment design.

Specific decommissioning requirements are outlined in Section 5-1 of the Petroleum Act. For abandonment, the licensee or owner is liable for damage or inconvenience caused wilfully or inadvertently in connection with the abandoned facility, unless otherwise decided by the Ministry (Norwegian Petroleum Directorate, 2016).

4.2.5 United States

Introduction

Over the past two decades, domestic UOG development in the US has turned the country into the largest gas producer in the world (ICLG, 2016). The US Energy Information Administration estimates that about 11.34 trillion cubic feet of dry natural gas was produced directly from shale and tight oil resources in the United States in 2013. This was about 47% of total U.S. dry natural gas production in that year (Energy Information Administration, 2015).

Licensing and Regulation

Licensing

The determination of a legal and organisational framework applying to oil and gas activities depends in part on whether the underlying resources are owned by the government or private parties and whether the location is onshore or offshore.

The development of oil and gas reserves on federal lands occurs through leasing programmes managed by the Department of the Interior. Exploration and production activities on federal onshore properties are governed by the Mineral Leasing Acts of 1920 and 1947 and are regulated by the Bureau of Land Management ( BLM). The BLM reviews and approves permits and licences for companies to explore and develop oil and natural gas on federal lands, and, once projects are approved, it enforces regulatory compliance.

At the state level, public agencies generally regulate oil and natural gas development and production on state land. For example, in Pennsylvania the Department of Conservation and Natural Resources can issue leases for shale gas development on state land. There has been a moratorium on new leases on state land in Pennsylvania since June 2015.

The leasing of private land for oil and natural gas development is by individual landowners who negotiate leases directly with operators. In Pennsylvania, this practice has led to widespread, largely uncontrolled, development of both conventional and unconventional development. The subsequent potential for environmental and land-use impacts has been widely reported and has been the subject of detailed review and assessment (for example by Considine, et al., 2012).

Regulation

Regulation of oil and natural gas development and production is carried out by public bodies at the State level (ICLG, 2016). Under the Energy Policy Act of 2005 the use of fluids in hydraulic fracturing used in UOG developments has been exempted from a number of federal statutes including the Clean Air Act, Clean Water Act, Safe Drinking Water Act, and the Comprehensive Environmental Response, Compensation, and Liability Act.

In Pennsylvania, the Department of Environmental Protection's ( DEP) Office of Oil and Gas Management is responsible for facilitating "the safe exploration, development, recovery of Pennsylvania's oil and gas reservoirs in a manner that will protect the state's natural resources and the environment". The primary regulations are set out in Chapter 78 of the Pennsylvania Code, which covers: issuing of permits; environmental standards; well drilling; operation and plugging together with reporting and financial bonding arrangements amongst others.

These regulations were modified in 2012 to enhance the level of environmental protection by specifically addressing unconventional well development in the state, including measures to prevent the unauthorized releases of regulated substances onto the ground. The modifications also aim to protect public resources and to identify abandoned, orphaned and inactive wells in areas of hydraulic fracturing.

Financial Guarantees

A lessee of federal land must provide the BLM with a bond of at least $10,000 to ensure compliance with all the lease terms, including environmental protection before they begin geophysical exploration on leased or public lands. The BLM may require an increase in the bond amount whenever conditions warrant. For multiple leases, a lessee may provide a $25,000 state-wide bond or a $150,000 nationwide bond.

In Pennsylvania, a lease for oil or gas wells on state land may be bonded using individual bonds for each well or a blanket bond to cover all of the operator's wells. The value of the bonds is dependent on the number and depth of the wells held by the operator so that amounts could range from $4,000 for a shallow well to a maximum of $600,000 for operating 167 wells or more.

Well Integrity

In Pennsylvania, casing and cementing of wells is regulated in under Section 78.8 of Chapter 78 of the Pennsylvania Code. The operators must prepare a casing and cementing plan, which is available for inspection by the DEP. Under Section 78.8, operators are required to inspect each operating well quarterly to ensure it complies with the well construction and operating requirements of Chapter 78.

Monitoring

In Pennsylvania, Section 78.5 of Chapter 78 of the Pennsylvania Code requires that operators who wish to preserve their legal defence that the pollution of a water supply existed prior to the drilling or alteration of the well shall conduct a baseline monitoring survey. There are no requirements in the Code for monitoring during operations other than measures set out in under Section 78.89 to be undertaken in response to a natural gas migration incident. There are no requirements in the Code for post abandonment monitoring.

Decommissioning, Restoration and Aftercare

For federal lands, Section 7(b) of the Natural Gas Act requires a natural gas company to obtain approval from the Federal Energy Regulatory Commission (FERC) before abandoning all or any portion of its facilities subject to the jurisdiction of the FERC. The FERC may only permit the abandonment of natural gas facilities upon finding that (1) the available supply of natural gas is depleted to the extent that the continuance of service is unwarranted, or (2) that the present or future public convenience or necessity permits such abandonment. The plugging and abandonment of oil and natural gas wells are also subject to state regulation and, for federal lands to regulation by the Department of the Interior (ICLG, 2016).

Section 78.91 of the Pennsylvania Code sets out the general provisions for plugging wells with detailed requirements set out in Section 78.92. Section 78.65 of the Pennsylvania Code sets out requirements for site restoration following the cessation of operations at a well site. No aftercare requirements are specified in the legislation.

4.2.6 Canada

Introduction

Canada is the world's fifth largest natural gas producer in the world, behind the United States, Russia, Iran and Qatar (ICLG, 2016). Canada's oil and gas industry is active in 12 of its 13 provinces and territories including Alberta (CAPP, 2016).

Licensing and Regulation

Licensing

Canada's Federal and provincial governments share jurisdiction over Canadian energy policy, as well as the legal and regulatory framework for the exploration of Canadian oil and natural gas reserves. Accordingly, there is no single energy policy or regulatory body governing the development of oil and natural gas reserves. The Federal and provincial governments are also owners of the majority of Canada's mineral rights. The majority of the Federal governments' ownership rights are made up of oil and gas rights in Canada's national parks and Aboriginal lands.

Although the Federal and provincial governments own the majority of Canada's oil and gas rights, some oil and gas rights are held by private landowners. For example, approximately 14% of Alberta's oil and gas rights are privately owned. Companies obtain the right to explore, drill and produce oil and natural gas from private landowners by way of a privately negotiated oil and gas lease (ICLG, 2016).

The oil and natural gas rights owned by Federal and provincial governments and private individuals are transferred to participants through licences and/or leases to explore for, develop and produce oil and natural gas. Once a licence or lease is issued, a participant is entitled to explore for, develop and produce oil and natural gas in accordance with the terms of the licence or lease. At the end of the term, or upon termination of the licence or lease, the rights granted to the participant will revert to the Federal or provincial government that issues the licence or lease (ICLG, 2016).

In Alberta, petroleum and natural gas rights are acquired by operators under regular competitive bid auctions administered by Alberta Energy, a ministry of the Government of Alberta. This body manages the development of the province's non-renewable resources including coal, minerals, natural gas, petrochemicals, conventional oil and oil sands and renewable energy, including granting industry the right to explore for and develop energy and mineral resources.

Regulations

Federally owned oil and gas rights are governed by The Canadian Petroleum Resources Act and The Canada Oil and Gas Operations Act. Provincially owned oil and gas rights are governed by each province's respective legislation governing the exploration and production of oil and natural gas (ICLG, 2016).

In Alberta, the Alberta Energy Regulator ( AER) is an industry funded regulatory body established under the Responsible Energy Development Act of 2013 and associated regulations. AER is responsible for the environmentally responsible development of energy resources in the province including oil, gas, coal and oil sands and associated infrastructure under a number of energy resource enactments.

The Government of Alberta has granted the AER authority to review and make decisions on proposed energy developments, to oversee all aspects of energy resource activities in accordance with government policies, to regularly inspect energy activities to ensure that all applicable requirements are met, to penalize companies that fail to comply with AER requirements, and to hold hearings on proposed energy developments. The AER also allocates and conserves water resources, manages public lands, and protects the environment under a number of separate pieces of legislation.

Financial Guarantees

In Alberta, there is no requirement for up-front financial guarantees as part of the awarding of tenure for oil and gas development and production. Instead, financial guarantees are set under the Licensee Liability Rating (LLR) Program and Licence Transfer Process under AER Directive 006 .

The purpose of the LLR program is to:

  • prevent the costs to suspend, abandon, remediate, and reclaim a well, facility, or pipeline in the LLR Program from being borne by the public of Alberta should a licensee ( i.e. an operator) become defunct; and,
  • minimize the risk to the Orphan Fund posed by the unfunded liability of licences in the program (Alberta Energy Regulator, 2016).

The AER's Liability Management rating assessment is designed to assess a licensee's ability to address its suspension, abandonment, remediation, and reclamation liabilities. The assessment is a comparison of a licensee's deemed assets to its deemed liabilities and is conducted monthly and on receipt of a licence transfer application (Alberta Energy Regulator, 2016).

If a licensee's deemed liabilities exceed its deemed assets it is required to provide the AER with a security deposit for the difference. A security deposit is required to minimize the possibility of the licensee's suspension, abandonment, remediation, and reclamation costs being borne by the Alberta Orphan Fund (Alberta Energy Regulator, 2016).

The LLR Program applies to all upstream oil and gas wells, facilities, and pipelines. The Alberta Orphan Fund will pay the costs to suspend, abandon, remediate, and reclaim a well, facility, or pipeline included in the LLR Program if a licensee or working interest participant becomes defunct. The Orphan Fund is entirely funded by licensees in the LLR Program through a levy administered by the AER. In 2014/15 the Orphan Fund spent $16 million on site reclamation, well abandonment, facility decommissioning and pipeline abandonment largely funded by the AER orphan fund levy (Orphan Well Association, 2015).

Well Integrity

In Alberta, detailed requirements for casing and cementing design are set out in AER Directives 008, 009 and 0010. In particular, these require that casing and cementing design should assist with well control and groundwater protection. The well design should ensure that the materials used are suitable for the life of the well (Alberta Energy Regulator, 2016).

Monitoring

In Alberta, AER Directive 035 requires baseline groundwater monitoring for coalbed methane exploration and development for wells above the base of groundwater protection but not for other oil and gas operations. There is no requirement for operational or post-closure monitoring of other UOG developments in Alberta (Alberta Energy Regulator, 2016).

Decommissioning, Restoration and Aftercare

The Federal and provincial governments have enacted legislation to govern the abandonment and reclamation of lands subject to oil and natural gas development (ICLG, 2016).

In Alberta, well abandonment is regulated under AER Directive 020. This details the minimum requirements for well abandonments as required under the relevant oil and gas regulations. The stated objective of the well abandonment Directive is to cover all non-saline groundwater and to isolate permeable zones within wells (Alberta Energy Regulator, 2016).

The AER regulates reclamation activities on both private and public land. A company that owns a well or pipeline that is no longer productive is responsible for reclaiming the land, addressing surface reclamation issues and subsurface contamination, and applying to the AER for a reclamation certificate. The standard of all reclamation work must be professionally signed-off and the licensee holds a 25-year liability for surface reclamation issues and a lifetime liability for contamination (Alberta Energy Regulator, 2016).

4.2.7 Australia

Introduction

UOG activity in Australia comprises both coalbed methane (known in Australia as coal seam gas ( CSG)) and shale gas exploration and development. There are substantial reserves of CSG in both New South Wales and Queensland. Exploration for UOG is still in its relative infancy in Australia with an emerging unconventional gas industry in New South Wales and Queensland (Minter Ellison, 2013). This review concentrates on New South Wales where the regulatory system has recently been the subject of extensive scientific review and subsequent improvement ( NSW Chief Scientist and Engineer, 2014a; NSW Government, 2015). As such, it represents a good example of a modern regulatory regime that has addressed concerns arising from the development of UOG resources.

Licensing and Regulation

Legislative regime

Australia is a federation of six States and two Territories. Legal and political power is divided between the Federal Government and the State/Territory governments as set out in Australia's Constitution (Minter Ellison, 2013). Each State and Territory government in Australia has jurisdiction over petroleum reserves within their territory. The definition of "petroleum" in each State or Territory jurisdiction generally includes CSG and other UOG resources (ICLG, 2016).

In New South Wales, onshore oil and gas, including UOG development, is regulated by the Division of Resources and Energy within the Department of Industry under the Petroleum (Onshore) Act 1991 ( NSW) , the Petroleum (Onshore) Regulation 2007 (currently being updated), the Environment Operations Act 1997 and the Environmental Planning and Assessment Act 1979 .

Licensing

With some limited exceptions, all on-shore petroleum reserves are owned by the Government of the relevant State or Territory (ICLG, 2016).

In New South Wales, a title ( i.e. a licence or lease) must be granted by the Minister for Resources & Energy under the Petroleum (Onshore) Act 1991 before an operator can prospect, explore for or produce petroleum (including coal seam gas), whether on Crown or private land.

As part of the review of oil and gas regulation in NSW the process of awarding of titles is in the process of being changed ( NSW Government, 2015). A similar licensing system to that used in Pennsylvania operated in New South Wales until 2011. This led to 65% of the state being licensed for coal seam gas exploration including land in urban areas and within National Parks and other protected areas. Under the 2015, Gas Plan ( NSW Government, 2015) a new licensing system has been put in place and unused exploration licences have been recalled and operators compensated. Consequently, only 15% of New South Wales is now licensed and new licences will only be issued under a strategic release programme.

The strategic release programme is similar to the licensing system adopted in the UK and other jurisdictions and fulfils a recommendation of the review of legislation in the New South Wales Chief Scientist and Engineer's review of CSG regulation ( NSW Chief Scientist and Engineer, 2014d). The review concluded that the State Government should "use its planning powers and capability to designate those areas of the State in which CSG activity is permitted to occur, drawing on appropriate external expertise as necessary". The strategic release programme is designed to provide greater clarity and transparency in decision making relating to where exploration activities may take place, and introduces a competitive process for determining who may undertake these activities. ( NSW Government, 2015).

Operators successfully applying for a title in NSW must demonstrate how they will reach Minimum Standards required by the Petroleum Onshore Act. This requires operators to supply details of corporate, compliance and environmental performance history including financial standing and technical capabilities (Minter Ellison, 2013). There is on-going assessment of the titleholder's compliance based on annual activity reports supplemented by information from inspections and audits by the NSW Government. Before a petroleum production lease can be granted, development consent must be obtained under the Environmental Planning and Assessment Act, 1979.

Regulation

On 1 July 2015 the NSW Environment Protection Authority became responsible for compliance and enforcement of all conditions of approvals for gas activities in New South Wales. The Office of Coal Seam Gas or Department of Planning and Environment issue conditions of approval when an application to explore, appraise or produce gas is approved. These conditions include strict controls which industry must comply with, to:

  • protect land, water and air
  • reduce noise impacts
  • control waste management
  • manage rehabilitation and biodiversity
  • manage the use of chemicals
  • require community consultation
  • manage infrastructure and requirements for insurance and assurance.

The NSW Environment Protection Authority is responsible for determining compliance with and enforcement of these conditions. The regulator is also responsible for regulating compliance with the codes of practice associated with the gas industry and for compliance with and enforcement of conditions of water access licences issued by the NSW Office of Water ( NSW Environment Protection Authority, 2016).

A range of compliance and enforcement mechanisms are available including penalty infringement notices and, if required, prosecution. The State Government's enforcement approach to non-compliance depends upon the nature or consequences of the non-compliance and the previous performance of the titleholder, including responses to previous notices or sanctions.

Financial Guarantees

It is the responsibility of the New South Wales Government to ensure that land disturbed by petroleum production activities is returned to a sustainable land use.

The operator is required by the Division of Energy and Resources to provide a security deposit that covers the full rehabilitation costs on all titles. This requirement ensures that the State does not incur financial liabilities in the event of a titleholder defaulting on their rehabilitation obligations.

The titleholder is required to provide an estimate of rehabilitation costs for consideration when determining the security deposit amount.

On grant of a title, the security deposit is set at a level that is intended to cover the limited range of activities permitted to be carried out under the title without further approval. On receipt of an application for approval of an activity, the adequacy of the security deposit is reviewed by the Government. If the activity is approved, the security condition is varied to cover the estimated rehabilitation costs for that activity, and any liabilities associated with previous or ongoing activities. Security reviews may also be triggered by title renewals or transfers, regulatory audits, environmental incidents and other changes to rehabilitation liabilities or be requested by the titleholder.

The amount of a security deposit is defined by a Rehabilitation Cost Estimate ( RCE) provided by the titleholder. If the RCE is inadequate, it will be rejected and the titleholder will be required to submit a revised RCE (Division of Resources and Energy, 2012). The Division of Resources & Energy will assess and determine when rehabilitation obligations have been met and the security deposit can be released. Partial release of the security deposits may occur when successful rehabilitation has been demonstrated for part of the site. Security deposits are usually required to be submitted either as cash or as a security certificate such as a bank guarantee ( NSW Government I&I, 2010).

The security deposit only covers that period of time when the operator holds the title for the petroleum exploration and production activities. As part of the Independent Review into Coal Seam Gas activities in NSW, the Government examined ways in which insurance coverage could be improved along with a range of other measures to deal with environmental risk in the industry ( NSW Chief Scientist and Engineer, 2014b).

The review identified that an improved insurance coverage regime would be beneficial to the State and supported the concept of a rehabilitation fund similar to the special purpose fidelity fund set up by the Western Australian Government for mine rehabilitation. Establishment of such a fund would enable an additional layer of coverage and be beneficial to government in the event of long term or unforeseen environmental impacts caused by CSG activities. The fund would represent a third layer of protection in addition to the security deposit process and any new or enhanced insurance arrangements required by Government, with each layer addressing separate risks as outlined in the conclusion of this paper ( NSW Chief Scientist and Engineer, 2014b).

Well Integrity

The construction and integrity of Australian coal seam gas wells is managed through a combination of state and territory legislation, industry standards and codes of practice. For example, Australia's petroleum and gas legislation is based on international standards such those produced by the API ( API, 2010; API, 2015) and NORSOK (NORSOK, 2013). New South Wales has a Code of Practice for Coal Seam Gas: Well Integrity (Division of Resources and Energy, 2012) which outlines monitoring and reporting requirements to ensure well integrity as specified by the regulator, including standards for well design, casing and cementing (Division of Resources and Energy, 2012).

Monitoring

In New South Wales, operators are required to produce a groundwater monitoring and modelling plan (including 2 years baseline monitoring data) as a condition on a Petroleum Exploration Licence. Operational monitoring (water and/or land quality) is required by the NSW Environmental Protection Authority under an Environmental Protection Licence and can also be required by the NSW Department of Planning and the Environment under a site's Development Consent ( NSW Chief Scientist and Engineer, 2014c).

Decommissioning, Restoration and Aftercare

The New South Wales Code of practice for coal seam gas well integrity (Division of Resources and Energy, 2012) requires that CSG well abandonment must ensure the environmentally sound and safe isolation of the well, protection of groundwater resources, isolation of the productive formations from other formations, and the proper removal of surface equipment. Well abandonment procedures use standard oilfield practice.

Land affected by petroleum production can be rehabilitated to a variety of land uses including agriculture, native ecosystems, forestry and mixed land uses. Under the Petroleum (Onshore) Act 1991, The New South Wales Government has a wide range of powers for regulating rehabilitation including:

  • environmental management and rehabilitation conditions on production leases;
  • rehabilitation security bonds; and
  • clear enforcement powers to ensure titleholders comply with their obligations.

Titleholders must also submit and comply with an approved Petroleum Operations Plan (including a rehabilitation plan), which is used for detailed rehabilitation planning and for monitoring rehabilitation progress and success.

Rehabilitation must be undertaken progressively over the life of the project. The New South Wales Government has responsibility for determining when rehabilitation has met the required standard, taking into account post-production land use, prior to title relinquishment and security deposit release. Partial release of the security deposit may occur when successful rehabilitation has been demonstrated for part of the site.

4.2.8

4.2.9 Lessons for Regulation in Scotland

Introduction

The review of regulatory regimes in a number of countries provides a benchmark against which the current regulatory regime in the UK and Scotland can be assessed. It also provides evidence that the Scottish Government can use when determining whether regulatory powers require modification should UOG development be permitted in Scotland.

A summary of the results of the regulatory review is presented in , which allows a comparison of the Scottish regulatory system against those in the other jurisdictions reviewed on the following basis:

  • whether the licensing system is led by the government or by operators;
  • whether the regulatory and licensing functions of government are combined or separate;
  • how well integrity and well abandonment are regulated;
  • to what extent monitoring is required prior to, during or after UOG development;
  • whether surface restoration is required; and
  • whether funds for decommissioning or repair of orphan wells are available.

Licensing

The UK and Scottish petroleum licensing system as described in Section 3.2 is a two-stage process:

  • the identification by the government of which areas are available for licensing; and
  • a competitive bidding process for licences with licences awarded to operators who are technically competent and financially viable and have appropriate safety and environmental management systems in place.

The latest (14 th) round of licensing in the UK was also the subject of a strategic environmental assessment ( DECC, 2013b) and licence applications under the 14 th round have, where necessary, been assessed for impacts on European sites.

The majority of the jurisdictions considered operate similar licensing regimes to that in the UK and Scotland. The only notable exception studied is Pennsylvania, where the majority of leases are for privately owned lands and are negotiated directly between the landowner and the operator without state control. This has led to widespread largely uncontrolled development of both conventional and unconventional wells and the potential for environmental and land-use impacts. The Scottish licensing system is comparable with the majority of the jurisdictions studied and can therefore be considered to represent best practice (as discussed in the review of licensing in New South Wales ( NSW Chief Scientist and Engineer, 2014d)).

Regulation

A strong regulatory system is necessary to ensure that UOG operations are effectively controlled, so that well integrity during construction and abandonment is to a standard that reduces risk to as low as reasonably practicable (see Section 2.5). Regulators also provide independent assurance that standards are correct and being adhered to especially in areas not the primary concern or interest of those undertaking the activities ( DPC, 2009).

As shown in , jurisdictions with strong regulatory control separate regulatory and licensing functions so that the process for allocation of rights to exploit subsurface resources is separated from the regulation of the activities required to give effect to that exploitation ( i.e. exploration and production activities) ( NSW Chief Scientist and Engineer, 2014d).

Regulation in Scotland, as in England and Wales, is by a number of different bodies, principally SEPA, the HSE and Planning Authorities - albeit with clearly defined roles. A single regulator has been considered to be preferable to multiple regulators ( NSW Chief Scientist and Engineer, 2014d; Task Force on Shale Gas, 2015). In England, the Government ( BEIS) has responded to such criticism by setting set up a Shale Gas Strategy Group to ensure a 'proactive and joined-up' approach to exploration and development of shale gas in England. The purpose of the Shale Gas Strategy Group is to provide co-ordination within and across government (in England). As well as BEIS, the strategy group includes the HSE, UK Treasury, the Environment Agency, Public Health England, the Department of Environment, Food and Rural Affairs ( DEFRA) and a number of representatives from mineral planning authorities.

No similar group currently exists in the Scottish Government, however the regulatory system in Scotland is reported to be "generally well-coordinated between the main regulatory bodies" (Independent Scientific Expert Panel, 2014). The Independent Scientific Expert Panel has only identified one regulatory gap relating directly to well integrity, decommissioning or restoration, namely the absence of any mechanism requiring for long-term monitoring and responsibility for wells. However, this report considers that existing post-decommissioning monitoring under the CAR regulations should be sufficient to identify wells at risk of well integrity failure. In relation to long-term responsibility, the Expert Panel recognised that "operators have an open-ended liability to remediate any ineffective abandonment" (Independent Scientific Expert Panel, 2014). Possible methods of managing liabilities associated with orphan wells in situations where operators are no longer in existence is discussed in Chapter 6 of this report.

Financial Guarantees

Provision of some type of financial guarantees is associated with the granting of licences or leases in all of the jurisdictions considered. In the majority, including Scotland, financial guarantees are required to be sufficient to cover restoration liabilities (including well abandonment) for licensed activities. The exceptions are Pennsylvania, where the value of financial guarantees required may not be sufficient to manage all liabilities, and Spain, where financial guarantees may cover surface restoration only. A more detailed review of financial guarantees required for potential UOG development in Scotland forms Chapter 6 of this report.

Well Integrity and Well Abandonment

In order to ensure well integrity during construction and abandonment work should be to a standard that reduces risk to as low as reasonably practicable. All jurisdictions require well construction and abandonment to be undertaken to guidelines or standards. The most prescriptive of these, including Scotland, are based on industry best practice, including Norwegian (NORSOK, 2013) and US ( API, 2010; API, 2015; API, 1993) standards and require well designs and well abandonment plans to be reviewed by the regulatory authorities.

Monitoring

Although baseline monitoring is required in some jurisdictions, in Scotland it is discretionary but is very likely to be required by SEPA as part of the requirements for obtaining a deep borehole licence ( SEPA pers. com.). Baseline monitoring is recognised as good practice for operators in the UK by UKOOG.

Operational monitoring is driven by environmental regulation of operational activities in Scotland (under the CAR Regulations) and in Denmark, Poland and New South Wales. In other jurisdictions, operational monitoring appears to be at the discretion of the operator. Scotland is the only jurisdiction of those reviewed where there is a legal requirement for post-closure monitoring - in this case to allow the surrender of CAR licences ( SEPA, 2012).

Restoration

Restoration is required by regulation in all jurisdictions, with some requiring restoration to the pre-development or another specified end-use. In Scotland, restoration to a specified end use is achieved through the planning system.

Orphan Well Fund

Funds designed to ensure that residual risks associated with the management of liabilities associated with orphan wells do not fall the on public purse are currently in place in Canada ( e.g. Alberta) and a similar system has recently been proposed for use in New South Wales ( NSW Chief Scientist and Engineer, 2014d). Currently there no such scheme in Scotland or the UK more generally. The possible role of such funds for potential UOG development in Scotland is discussed in more detail in Chapter 6.

Table 3: Summary of Regulatory Assessment
Table 3: Summary of Regulatory Assessment

Key to Table 3
Key to Table 3

4.3 Other Industries

4.3.1 Introduction

In addition to the regulation of UOG in other countries, lessons for Scotland can be taken from the regulation of two other industries; namely the landfill and opencast coal mining industries. Both require the successful regulation and management of restoration liabilities and, in the case of the landfill industry, the regulation and management of long-term environmental impacts also.

4.3.2 Landfill Industry

The Planning Authority

The Scottish Government's national planning policy as contained within Scottish Planning Policy published in June 2014 (Scottish Government, 2014), states in paragraph 192 that Planning Authorities should:

"secure decommissioning or restoration (including landfill) to agreed standards as a condition of planning permission for waste management facilities; and ensure that landfill consents are subject to an appropriate financial bond unless the operator can demonstrate that their programme of restoration, including the necessary financing, phasing and aftercare of sites, is sufficient".

Furthermore, The Scottish Government's Planning and Waste Management Advice (Scottish Government, 2015b) states that:

"The design of the final landform of landfill sites, the mitigation of adverse impacts during the operational period, and the long-term control of landfill gas and leachate are important matters. Proposals for site restoration and aftercare should be fully set out in applications and appropriately conditioned, though regulatory interventions diverting waste from landfill may extend the life of consented sites, affecting restoration targets, final landform profiles and after-use".

Planning authorities generally control the performance, restoration and aftercare of a landfill site through planning conditions and a financial bond attached to any approved consent via a Section 75 (s75) Agreement. This is an agreement under Section 75 of The Planning etc. (Scotland) Act (2006) and consists of a contract between Planning Authority and landowner and may be used (amongst other things) to finance the appointment by the council of a compliance officer to monitor the site during the term of the planning permission.

This position is reinforced by paragraph 248 of the Scottish Planning Policy ( SPP), which states, in respect of mineral permissions that " Planning authorities should ensure that rigorous procedures are in place to monitor consents, including restoration arrangements, at appropriate intervals, and ensure that appropriate action is taken when necessary". It should be recognised however that there is no legal provision for planning authorities to use Section 75 agreements to fund local council operations. The installation of a compliance officer through this means would therefore have to be justified in terms of demonstrating that the monitoring is a highly specialist function which goes beyond the statutory functions of the authority.

As discussed in Chapter 3 above, other means of securing financial agreements can be utilised. For example, the Heads of Planning Scotland ( HOPS) 'Position Statement on the Operation of Financial Mechanisms to Secure Decommissioning, Restoration and Aftercare of Development Sites' (June 2015) identifies a number of alternative methods of securing financial obligations such as surety bonds, bank guarantees, parent company guarantees and mutual funds (see Chapter 6 for more detail).

Scottish Environment Protection Agency

The Landfill (Scotland) Regulations 2003, as amended, implements the EU Landfill Directive in Scotland and set standards for the design and operation of landfills. SEPA regulate landfill sites directly through the Pollution Prevention Control (Scotland) Regulations 2012. Once a Pollution Prevention and Control permit is issued, the regulator ensures that its conditions are met until such times as the regulator accepts its surrender.

A Plan for Closure and Aftercare Procedures must be submitted as part of any permit application, outlining the methods and measures, proposals and procedures which the applicant/operator intends to implement at the installation to ensure that the permitted activities define the means of ensuring definite closure of the permitted installation and demonstrate the maintenance of all necessary infrastructure until such time as the installation can be deemed to no longer pose any hazard to the environment.

Regulation 18 of the Pollution Prevention and Control (Scotland) Regulations requires that SEPA may grant a permit in respect of a specific waste management activity only if it is satisfied that the applicant is " a fit and proper person to carry out that activity", including ensuring that the applicant has made adequate financial provisions (by way of a security or an equivalent arrangement to ensure that " obligations (including after-care provisions) arising from the permit in relation to the activity are met".

Paragraph 13 of the Landfill (Scotland) Regulations relate specifically to the costs associated with the disposal of waste in landfill and require that the operator should ensure " that the charges the operator makes for the disposal of waste in its landfill covers […] the costs of setting up and operating the landfill; […] the costs of the financial provision required […] and, […] the estimated costs for the closure and after-care of the landfill site for a period of at least 30 years from its closure".

Following definite closure of a landfill, Regulation 17 of the PPC Regulations requires that:

"the operator remains responsible for the maintenance, monitoring and control for such period as SEPA determines is reasonable, taking into account the time during which the landfill could present hazards."

Revenue Scotland

Revenue Scotland is the tax authority responsible for the administration of Scotland's devolved taxes. The Scottish Landfill Tax ( SLfT) is a tax on the disposal of waste to landfill and is charged by weight based on two rates: a standard rate for active materials and a lower rate for less polluting (referred to as 'inert') materials. As is currently the case with ( UK) landfill tax, operators of landfill sites in Scotland will be liable for SLfT, and this cost is expected to be passed on to the local authorities and businesses who dispose of waste at the landfill sites.

4.3.3 Opencast Coal Mining Industry

The Planning Authority

Opencast coal has been produced for many years in Central Scotland. When the opencast coal industry was hit by falling coal prices in 2013 a number of site operators went into liquidation (Scottish Government, 2015c; Mackinnon, et al., 2014). Due to inadequate monitoring of progress in restoration and insufficient financial instruments being in place to fund restoration of opencast coals sites, there is a legacy of unrestored sites requiring remediation.

For example in East Ayrshire, restoration liabilities for unrestored opencast coal sites are estimated at £161 million as against a total restoration and aftercare bond coverage of £28.6 million (Mackinnon, et al., 2014) with the balance falling on the public purse. There are public concerns that the development of a UOG industry in Scotland could potentially lead to similar problems in future. According to the McKinnon Report, the primary causes in East Ayrshire were inadequacy in both operational procedures and regulatory oversight by the planning authority (Mackinnon, et al., 2014).

These issues have also been examined by the Scottish Government's Opencast Coal Task Force for Scotland as a whole (Scottish Government, 2015c). The Task Force concluded, " There is in place a [planning] regime that if followed correctly would ensure competent monitoring and effective compliance" , i.e. the problems were associated with the implementation of the control and implementation of financial management of liabilities for opencast coal restoration and not the regime itself.

Measures are currently being put in place in Scotland to ensure that such a problem does not occur in future in the opencast coal industry. These measures include improving the ability of local authorities to monitor operator's compliance with restoration obligations and to ensure that an appropriate level of financial cover for these obligations is in place (Scottish Government, 2015c). These measures would be anticipated to benefit other similar industries such as UOG development that may require the use of financial guarantees to manage restoration liabilities.

The Scottish Government's national planning policy direction as contained within the SPP, states in paragraphs 247 and 248 that Planning Authorities should:

(247.) " …through planning conditions and legal agreements, continue to ensure that a high standard of restoration and aftercare is managed effectively and that such work is undertaken at the earliest opportunity. A range of financial guarantee options is currently available and planning authorities should consider the most effective solution on a site-by-site basis. All solutions should provide assurance and clarity over the amount and period of the guarantee and in particular, where it is a bond, the risks covered (including operator failure) and the triggers for calling in a bond, including payment terms."

and;

(248.) " …ensure that rigorous procedures are in place to monitor consents, including restoration arrangements, at appropriate intervals, and ensure that appropriate action is taken when necessary. The review of mineral permissions every 15 years should be used to apply up-to-date operating and environmental standards although requests from operators to postpone reviews should be considered favourably if existing conditions are already achieving acceptable standards."

The HOPS 'Position Statement on the Operation of Financial Mechanisms to Secure Decommissioning, Restoration and Aftercare of Development Sites' ( HOPS, 2015), draws together work undertaken by the Opencast Coal Task Force examining financial guarantees along with insight based upon best practice being carried out by various planning authorities:

"It is critical that the quantum of a performance guarantee is sufficient throughout the lifespan of the development to restore and provide aftercare at the site to its intended final use. If the method of calculating the guarantee quantum is flawed then no matter how efficient monitoring and review mechanisms are, the funds available will be insufficient to restore the site. This is a significant risk to compliance with the planning permission." (p. 4).

Further, "The Opencast Coal Task Force is advising of the need for a 'progress plan' that can be regularly submitted setting out the extent of development carried out over a given period of time; this allows a check to be made against the compliance with the terms of the planning permission. The Group acknowledges that in the course of working a site, the development may require an amendment dependent upon, for example, geology, market demands and mineral quality. Hence the concurrent submission of a 'programme plan' would set out details of the work to be undertaken over the ensuing period, and allow a view to be taken about any material variation to the development, in turn necessitating a variation to the planning permission and potentially the financial guarantee. Additionally each opencast coal site will require to have a compliance assessor, paid for by the developer but responsible to the planning authority. Regular reports would be prepared and a checklist of compliance with approved plans and conditions set out. Monthly returns would be publically available and sent to Scottish Government, providing a regular statement on the compliance with the planning permission." (p. 7)

The planning authority would generally control the performance, restoration and aftercare of an opencast coal site through one of the various financial guarantee options discussed above, which would be attached to any approved consent via Section 75 (s75) Agreements. An agreement under Section 75 of The Planning etc. (Scotland) Act (2006), consists of a contract between Planning Authority and landowner and may be used (amongst other things) to finance the appointment, by the council, of a compliance officer to monitor the site during the term of the planning permission.

Scottish Environment Protection Agency

Licences and permits for access to the nation's coal primarily fall under the remit of the Coal Authority, as do legacy issues such as subsidence of abandoned mines and mine water pollution. However, SEPA regulate the environmental impacts of coal related activities through the Water Environment (Controlled Activities) (Scotland) Regulations ( CAR) 2011 (as amended), the Waste Management Licensing (Scotland) Regulations 2011, and the Radioactive Substances Act 1993 (RSA93). These activities include both coal mining and coalbed methane extraction.

CAR Licence - For any single development, multiple CAR licences may be required to fully cover the range of activities undertaken. The submission must also include any mitigation measures that will be used to reduce adverse effects. Any authorisation granted will specify conditions to limit impacts and may also require a monitoring plan. During the decommissioning phase, CAR licence(s) are surrendered following SEPA agreement. Prior to surrendering any licence, SEPA therefore must have sufficient information to demonstrate that there would be impact on the water environment that exceeds agreed standards. The duration and level of post-operation monitoring must therefore be sufficient to demonstrate this and as a consequence cannot be explicitly quantified.

Waste Management Licence - The management and disposal of any waste streams generated through operation (and not considered as extractive waste) may require to be licenced by SEPA under the above Regulations. Under this regime, identified wastes would need to be stored, treated and disposed of appropriately and in accordance with an approved management plan.

Radioactive Substances Permit - If NORM is produced through activities such as coal mining dewatering, then a permit under RSA93 may be required. If authorisation is needed, monitoring and reporting would likely be required by operators in order to comply with the authorisation.

The Coal Authority

Under the Coal Industry Act 1994, certain specified coal mining operations require a statutory licence from the Coal Authority, including surface mining activity. The Coal Authority will determine applications for licences and associated leases in accordance with its statutory duties which include: ensuring that those authorised to undertake coal mining operations are able to finance both the proper carrying on of those operations and the discharge of liabilities arising from those operations, and to operate cooperatively with the Health and Safety Executive relating to (for example) the exchange of information. The Coal Authority may also take account of the extent to which the Applicant has obtained the other necessary surface access rights, permissions and consents.

The Coal Authority may grant a "conditional licence" which defers the coming into effect of the authorisation to mine until specified requirements have been satisfied, for example, that planning consent has been obtained. In this example, appropriate financial guarantees for restoration and aftercare should be in place prior to achieving planning consent, and therefore authorisation from the Coal Authority will be similarly dependent on these being arranged. The conditional licence will lapse if these requirements are not fulfilled within a specified period.

The Coal Authority 'Guidance Notes For Applicants For Surface And Underground Coal Mining Licences' (2013) outlines the requirements that must be met in order to be granted a licence to mine, this includes Applicants entering into an "Interaction Agreement": "The term "interaction" is used to describe the physical effects which activities connected with any coal or coal mine may have on other such activities (including their subsidence effects), or on other interests in coal. Those effects include water or gas migration and the results of a withdrawal of lateral or vertical support. Interaction can occur in situations where the activities are separated by considerable distances. In order to deal with this, a framework has been created which will bind signatories to an agreement (the "Interaction Agreement") to a process of notification, discussion and giving and obtaining consent and an obligation to act reasonably." (p. 4).

4.3.4 Lessons from Other Industries for Scotland

The study has also reviewed the regulatory systems relating to landfill sites and opencast coal mining in Scotland to see if there are lessons to be learned and applied to the betterment of UOG regulation. For both industries, restoration responsibilities are regulated by planning authorities whilst environmental compliance is regulated by SEPA. Where the two industries differ is in the treatment of financial guarantees. In the case of landfill development, SEPA requires that the operator must have made adequate financial provisions to meet its obligations (including aftercare). In the case of opencast coal mining, planning authorities can control the performance, restoration and aftercare of opencast coal sites through financial guarantees attached to legal agreements between the planning authority and the operator.

The restoration of opencast coal developments provides one model for the means by which Planning Authorities may control surface restoration of UOG developments and manage liabilities. When making comparisons between the two industries, however, the size of the surface restoration liabilities associated with UOG development is likely to be considerably smaller than that associated with opencast coal extraction.

The wider applicability of the approaches to managing financial risk for landfill sites and opencast coal extraction to UOG development - including licensing - is discussed in more detail in Chapter 6.


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