Poland: Shale Gas Legal Issues
Many unconventional gas prospecting licenses in Poland are slowly reaching their expiration dates. Operators are hard-pressed to obtain environmental decisions, since that’s what license extension is contingent upon. What can hinder the operators’ efforts, and could it be the operators themselves? A case study of the current formal and legal steps taken in respect of the Wieluń license held by San Leon and Hutton Energy attempts to answer that question.
Despite the absence of amended pro-gas legal regulations, and an ongoing fuss surrounding their enactment, extensive work is being done in Poland with a view to developing legal documentation sanctioning drilling by individual operators. In particular, companies strive to secure extensions for their prospecting and exploration licenses that for some of them are about to expire in 2014 - 2015.
The prerequisites for securing a prospecting and exploration license extension in Poland include acquisition of a valid environmental decision for individual work stages. The decision may be obtained from local authorities with jurisdiction over the area covered by the license.
One might ask if, given such relatively short time period, companies will actually be able to develop a relevant strategy and successfully complete all required environmental procedures before their licenses expire, or will they expose themselves to the consequences of defaulting on their licensing obligations, or even risk relinquishing their license rights?
The answer to this question hinges upon efficiency of the operators, their understanding of local legal considerations, as well as the pace of their actions.
Some of the operators in Poland, who are holding off on geophysical surveys required as part of prospecting to identify specific locations and conduct environmental analyses, and who do not engage in large-scale drilling, face the risk of their licenses being revoked. There has been a noticeable shift in the approach demonstrated by Polish authorities responsible for environmental protection. The change has only become apparent very recently, and is exemplified by the case of the ‘Wieluń’ license operator.
Specifically, Polish environmental authority issued a decision on September 30, 2013 pointing out that the operator was insufficiently prepared to obtain the environmental decision for prospecting and exploration of unconventional gas deposits under their license prior to license extension. This may prevent the license from being extended for subsequent years. Polish administrative authorities involved in the decision expressed an opinion that the operator could not request the validity of their prospecting and exploration license be extended since they failed to perform the most elementary work, i.e. geophysical surveys necessary to identify specific locations for exploration drilling.
The San Leon and Hutton corporation has held a 3-year prospecting and exploration license since July 2011. Already back in September 2011, the company initiated the license extension procedure, and applied for environmental decision for the license. As it turns out, certain data required for filing was missing from the application right from the start, and it has never been provided during the course of the procedure. After more than two years of proceedings, the District Director for Environmental Protection pointed out to San Leon and Hutton that since they had not been able to identify specific drilling locations in the two years since they had been granted the license, he was not able to work out with them the specific environmental conditions for drilling, required to extend the validity of their license for subsequent years.
In plain terms, San Leon and Hutton could not demand that their license, with drilling as its essential component, be extended, without identifying locations for such drilling and conducting environmental and social analyses in such locations. The District Director for Environmental Protection in Łódź offered the correct legal characterization of the situation. His decision is certainly bound to trigger controversies and panic among other operators.
This may also be a clear signal from Polish government that it is losing patience with companies that do not operate within their licenses, and do not carry out actual works on the terms of their previously granted unconventional gas licenses. Will it lead to shaking up the license market and the operators who prospect gas in Poland, or rather expedite exploration? The answer is quite simple: it will probably do both.
Michał Tarka is a Partner at BTK Legal in Warsaw.