Fracking rights holders can avoid legal snags by preparing well

Transparency, early public participation and permit compliance will help ensure smoother implementation

The Petroleum Agency of SA (PetroSA) has indicated that the first exploration rights in contemplation of hydraulic fracturing (fracking) may be granted by the end of this month. These will initially only permit exploration for shale gas reserves and, if viable reserves are identified, production rights will need to be obtained before the reserves can be exploited.

The production of shale gas could form an important element of SA’s future energy mix and create much-needed jobs and revenue for the fiscus.

In our experience of exploration and fracking in other jurisdictions and other large infrastructure projects in SA, projects can be stalled by legal process. While this may be inevitable in projects that involve newer technologies such as fracking, operators should consider strategies to minimise the costs and risks of delays by ensuring the concerns and needs of affected parties are tackled and that the outcome is positive for communities, the government and other stakeholders.

Above all, operators need to build trust through openness and transparency, as well as by demonstrating their capacity and experience to maintain high standards of safety and environmental protection.

Applications for certain licences require that the applicant conduct preliminary modelling of risks, which are shared via a public participation process. However, public engagement should not be restricted to these legislated processes. Applicants need to develop a participation process that seeks to engage with interested and affected parties from the outset, during the application phase, as well as during operation and decommissioning.

The nature of the engagement during each phase will differ and success will depend on the applicants’ ability to provide sufficient information in a format that can be readily understood by the lay person and which seeks to answer the anticipated common concerns of residents and environmental interest groups.

The applicant needs to ensure affected parties are not only heard but feel their issues have been considered and incorporated into the process. It is, however, worth acknowledging that some objectors hold strongly entrenched views with regard to fracking and operators must judge how far to continue to engage once all reasonable efforts have been exhausted. In those circumstances, the government and industry trade bodies also have a role to play to explain the policy drivers for shale gas exploitation, such as the economic advantages, job creation through the development of a local supply chain and energy security.

Risks of protest action or vandalism in the construction and operation phase can be reduced by this early engagement.

The Mineral and Petroleum Resources Development Act adopts a robust approach regarding access to land by exploration and production rights holders; the act requires only that the landowner or lawful occupier be given 21 days’ notice.

Nonetheless, these rights holders may, upon the instruction of the competent authority, be required to conclude an agreement with the landowner for the payment of compensation for any losses that may be suffered.

For example, this may cover liability for any environmental harm caused. If the parties fail to reach agreement, the matter may proceed to arbitration, which can result in further delays and costs. The competent authority may also prohibit the exploration or production rights holder from commencing or continuing with activities pending the resolution of this dispute.

In addition to exploration rights, operators may also need environmental authorisations, waste management licences, water-use licences, permits in terms of the National Forest Act, the National Environmental Management: Biodiversity Act and relevant provincial conservation legislation. They may also need permits in terms of the National Heritage Resources Act, not to mention permission from local authorities in terms of the Water Services Act and for rezoning.

An operator’s approvals strategy should, therefore, include a project team with environmental, technical, planning and legal advisers. The operator should engage with regulators to seek advice on when to apply for future approvals and time periods within which decisions of approval tend to be issued. This is particularly relevant where the governing legislation does not prescribe time periods within which authorisations will be considered.

Operators should be aware that there may be complexity for the regulators in assessing how to permit the first shale gas operations and it may require intensive and proactive engagement with technical and legal staff at the relevant agencies. In the face of intense public scrutiny and mistrust, agencies will probably be cautious. Operators should weigh the inconvenience of being “overpermitted” against the risk of project delay if objectors are able to mount a challenge on the basis that a permit has not been obtained. The goal should be to help the regulators learn about the technical processes involved, to allow them to take a practical but robust approach that will discourage legal challenge.

The above techniques and strategies may assist in reducing delay times but it is likely that initial authorisations will be challenged. These processes may result in significant delays to the implementation of the project, which may result in additional legal, technical and construction costs.

The government published the Regulations for Petroleum Exploration and Production in June 2015. These deal with a number of environmental law issues. In terms of the One Environmental System, the environmental affairs minister is the only competent authority to develop regulations relating to the environment – including with respect to mining operations. Certain clauses in regulations are therefore ultra vires and decisions made in terms of them could be challenged.

Potential rights holders should therefore be taking steps to ensure these regulations are amended and the existing regulatory framework is supplemented by the minister. These technical legal issues could delay projects that may otherwise be acceptable.

Even where challenges are dismissed, costs are rarely awarded against third-party objectors. The budget needs to provide for these costs and delays.

Opposition to shale gas exploration and fracking in the Karoo may be inevitable, but the effects can be minimised if operators adopt proactive strategies focused on engaging with interested and affected parties in a proactive and meaningful manner. Risks should be identified and strategies adopted to mitigate the effects and costs.