Introduction

On July 13 2011, following an expedited legislation procedure, Parliament adopted Law 2011-835 on the Prevention of the Exploration and Exploitation of Liquid or Gas Hydrocarbon Mines by Hydraulic Fracturing and Revoking Exclusive Licences to Prospect in Relation to Projects That Use This Technology.

Law 2011-835:

• prohibits the exploration and exploitation of liquid or gas hydrocarbon mines by drilling followed by hydraulic fracturing (known as 'fracking') of the rock in France (Article 1);
• created the National Commission of Orientation, tasked with assessing environmental risks related to hydraulic fracturing and other alternative techniques (the commission is also due to issue public advice on the topic) (Article 2); and
• requires that owners of exploration permits inform the relevant authority of the techniques used or considered for exploring hydrocarbons. Should such techniques entail fracking, the previously granted permits will be repealed (Article 3).

By prohibiting drilling followed by fracking, Law 2011-835 de facto prevents all exploration and exploitation of non-conventional hydrocarbons in France. However, the situation has been influenced by proceedings launched by several holders of exclusive exploration licences before the Constitutional Council and the administrative courts.

Constitutional Council decision

Schuepbach Energy LLC, whose two exclusive exploration licences were repealed in accordance with Article 3 of Law 2011-835, commenced proceedings before an administrative court arguing that Articles 1 and 3 of Law 2011-835 were unconstitutional.

The court applied to the Constitutional Council for a priority preliminary ruling on the constitutionality of Law 2011-835, which was issued on July 12 2012.

Schuepbach argued that the prohibition on the use of fracking to explore and exploit liquid or gas hydrocarbon mines violated:

• the principle of equality, because the rock fracking procedure was authorised in relation to geothermal energy according to Law 2011-835; and

• the precautionary principle, which provides that public authorities shall ensure the implementation of risk assessment procedures and "the adoption of temporary measures commensurate with the risk involved in order to prevent the occurrence of damages".

Further, Schuepbach argued that the abrogation of previously granted exclusive licences violated the principle of free enterprise, the right to respect for acquired rights and the ownership rights of the holders of exclusive exploration licences.

In its decision of October 22 2013 the Constitutional Council rejected Schuepbach's application and considered that Articles 1 and 3 of Law 2011-835 did not violate the rights and freedoms guaranteed by the Constitution.(1)

The council considered as follows:

• The legislature did not breach the principle of equity before the law by differentiating drilling procedures involving the fracking of rock in order to explore and exploit hydrocarbons from those applied to stimulate the circulation of water in geothermal reservoirs, because the two types of exploration are not equally harmful to the environment (eg, in terms of the number of holes required, the nature of the rocks and the chemicals used).

• The prohibition of fracking in relation to the exploration and exploitation of hydrocarbons was general and absolute, pursued a general interest and environmental protection objective and was not disproportionate "as regards the state of art".

• The applicant could not invoke a violation of the precautionary principle, which was not the basis for the prohibition of fracking. Consequently, the legislature did not have to adopt "temporary measures" only and could resort to implementing hard law.

Concerning the abrogation of the permits previously granted, the council ruled as follows:

• According to the Declaration of the Rights of Man and the Citizen, limitations to the principle of free enterprise may be imposed when such limitations are associated with constitutional requirements or are in the public's general interest.

• The revocation of the exclusive licences held by Schuepbach Energy LLC encroached no acquired rights because the law provided new reporting obligations for the exclusive licence holders.

• Mining licences granted by the administrative authorities with a defined scope and for a limited duration could not be regarded as equivalent to assets over which their holders acquire proprietary rights.

Refusal to approve transfer of exclusive licences

In 2012 Hess Oil acquired seven exclusive licences for the exploration of hydrocarbons from Toreador. These licences allowed only for the exploration of conventional hydrocarbons and therefore were not abrogated in 2011.

In accordance with the Mining Code, Hess Oil applied to the minister of ecology, sustainable development and energy for the transfer of the exclusive licences. The minister did not respond for over 15 months, which constituted an implied decision to reject the transfer of the licences.

As a result, Hess Oil launched proceedings before several administrative courts in order to compel the minister to issue an official decision on the transfer of such licences.

On April 2 and 25 2013 the Cergy Pointoise and Melun Administrative Tribunals issued orders compelling the minister to justify officially his decision on the transfer relating to the licences bought by Hess Oil with a periodic payment order of €14,000 a day.

Consequently, on September 26 2013 the minister officially refused to issue an authorisation for the transfer of the exclusive licences of exploration granted in 2010, on the grounds that:

• Hess Oil's French subsidiary did not have the requisite technical capacities in accordance with Article L122-2 of the Mining Code; and

• the geological disposals of the licences could be explored only by use of fracking, which has been prohibited in France since 2011.

According to the minister, Hess Oil intended to use fracking in rock at the perimeter of the areas covered by the licences it had acquired from Toreador. Based on these arguments, the minister declared that he would request the annulment of the periodic payment of €14,000.

On November 28 2013 the Council of State quashed the judgment of the Melun Administrative Tribunal.

Comment

Even though fracking was prohibited in 2011, the debate on the exploitation of non-conventional hydrocarbons in France is far from over.

The decision of the Constitutional Council and Law 2011-835 deal only with the techniques used for fracking, and do not resolve the more general issue of the exploration and exploitation of non-conventional hydrocarbons such as shale gas in the French territory.

In its October 11 2013 decision the Constitutional Council made several references to the "current state of technical and scientific knowledge" as an argument justifying the prohibition on fracking. This suggests that a review of Law 2011-835 is possible by the Constitutional Council in case of a "change of circumstances",(2) in accordance with the Constitution.

Moreover, in accordance with Article 2 of Law 2011-835, Decree 2012-385(3) was adopted to create the National Commission of Orientation, which to date has issued no publicly available advice on this subject.

The issue of compensation for the holders of exclusive exploration licences has yet to be entirely resolved in the French courts and the controversy over the prohibition on hydraulic fracturing in France continues.

This article was originally published in the Energy & Natural Resources Newsletter of the International Law Office - www.internationallawoffice.com.

For further information on this topic please contact Robert Follie or Guillaume Mezache at Holman Fenwick Willan LLP by telephone (+33 1 44 94 40 50), fax (+33 1 42 65 46 25) or email (robert.follie@hfw.com or guillaume.mezache@hfw.com). The Holman Fenwick Willan LLP website can be accessed at www.hfw.com.