France: Evolutions in the legal framework for shale oil and gas

Eversheds LLP, Paris, France

Published: March 14, 2012
Updated: July 16, 2015

Introduction

In March 2010, the French Government (hereafter referred to as the “Government”) delivered the first research permits to explore shale oil and gas in France¹. Afterwards French opponents of shale oil and gas operations focused their actions early in 2011 on hydraulic fracturing (hereafter referred to as “HF”). HF was already regulated by French and European laws before being used in shale oil and gas operations in France. Hydraulic fracturing had been applied twenty times in France under the existing legal framework, without any incidents being reported.

Following more than six months of major parliamentary debates in the French National Assembly and the Senate, Law n° 2011-835 was adopted on 13 July, 2011 and entered into force on 14 July, 2011. This law forbids “the exploration and exploitation of liquid or gaseous hydrocarbons through hydraulic fracturing” and enables the Government to abrogate “research permits which include projects using hydraulic fracturing.” This law was then considered a political response to a public concern, which pushed the Parliament to ban HF to satisfy its opponents.

In our description of the French legal framework for shale oil and gas, we shall first look at the regulation of mining exploration and the steps required before exploiting a shale oil and gas field (Section 1.). Then we shall consider the technical regulations applicable to the exploitation of oil and gas (Section 2.). We shall also detail the changes brought about by the Law n° 2011-835 on shale oil and gas which entered into force on 14 July, 2011 (Section 3.). Last, we shall review recent challenges to this law and consider France’s role in the global discussion on shale gas and hydraulic fracturing.

Update November 2015: read the article "What´s to become of France´s troubled fracking commission?" (Weblink)

TOP

1. The public monitoring for mining exploration in France: activities are subject to authorisation

Two main steps are provided for in the mining law: first the allocation of an exclusive research permit (1.1) and then the declaration opening the research work (1.2).

1.1 The delivery of an exclusive research permit

In France, an operator wanting to explore a given area has to start by applying for an exclusive research permit. Shale oil and gas, being hydrocarbons, are subject to the Mining Code. The permit delivered under this code authorises the operator to explore the area and declare ownership of the operation for all resources found through his research. To obtain the permit, the operator must first submit a file to the Minister.

The file must include a technical study, the program of the contemplated works, cartographical documents, as well as an impact notice² which details the potential effects of the works on the environment, and how those effects are taken into account. The Minister then conveys the file to the Prefect of that particular area and the Prefect consults the directors of the relevant Regional Environment, Development, and Housing Agency (hereafter “DREAL”³). The Prefect has three months to report back to the Minister and give his opinion, along with the opinions of the DREAL’s directors in question. The Minister makes a decision after taking the advice of the General Council of Mining. The permit can last up to five years and may be renewed twice.

1.2 The declaration of opening of works

Once the permit is granted, pursuant to article 83 of the Mining code, the opening of the research works is subject to a declaration from the operator to the Prefect supported by:

a health and security document;
a document detailing the consequences of the works on water;
an impact notice (assessment).

The Prefect passes on the declaration and the file mentioned in 1.1 to the relevant services, which have one month to issue their opinion. The declaration is also handed to the mayors, whose territory is covered by the permit, to provide then with information. The mayors make this information publicly available by placing it on the bulletin board in front of the Town Hall. The mayors are not informed about the granting of research permits, they are informed only when the works are announced. The public has no information on the precise nature of those works as the declaration is the only document displayed. If the Prefect considers that the works might harm the environment, the office can impose special instructions onto the operator.

No mandatory environmental impact study is provided for. The Minister of the Environment may at his discretion request one if he considers it useful when delivering titles⁴. The main reason for such a request would be an expectation that the operations might trigger risks or important consequences on the environment or to public health. If the Minister orders the operator to carry out such a study, this study is eventually communicated to the public.

TOP

2. The public monitoring for mining exploration in France: activities are subject to technical regulations

Mining activities, including drilling activities (2.1) and environmental protection (2.2), are tightly regulated in France.

2.1 Drilling activities

The construction of oil and gas wells is subject to specific rules and procedures as defined by the General Regulation for Extractive Industries RGIE⁵. Each well is constructed in conformity with an official decision authorising it (permit or concession with a works authorisation) and casing and cementing programmes have to be approved by the DREAL.

Technically speaking, the well has to be drilled deeper than any groundwater-bearing formation used for water production and has to be sufficiently isolated to avoid leakage into freshwater aquifers. Moreover, the cementing and isolation of the well have to be designed specifically for each well and each environment. Otherwise, DREAL will not validate the drilling plan. Details of the RGIE are defined below:

To minimize the risk of groundwater pollution, the RGIE⁶ applies article 26, which provides that the casing shall be designed according to the maximum loads. For HF, it implies the protection of the isolation through multiple layers of casing. Moreover, the casing must be checked on the day of their installation. DREAL oversees the monitoring and installation and must conduct regular tests to ensure its sealing.

A programme of tests taking into account the specificities of the environment and the corresponding fluid pressures must be presented by the operator to DREAL for the casing and cementing. The DREAL director may ask for complementary tests if warranted. The order of 22 March, 2000 details a further requirement for casing if the drilling takes place near groundwater that needs to be protected.

Article 22 of the applicable regulation further requires that the drilling plan be communicated to DREAL at least one month before the beginning of the research works and shall include, among other things:

a provisional geological section of the formations to be cut through,
a provisional technical section detailing the cementing and casing to be implemented, and the
description of the operations to be conducted, including the nature and pressure of the fluids used, and measures to ensure the security of the environment.

The drilling plan must also detail the means provided to control the characteristics of the fluids and to identify early signs of a blowout, the characteristics of tools designed to seal the works in the event of a blowout, and the characteristics of the casing and cementing.

2.2 The protection of water and environment

Protection of water and the environment are covered by the relevant sections of the Mining Code and the Environmental code.

Pursuant to article L. 161-1 of the New Mining Code⁷, as a general rule, companies must protect “natural resources”, including water.

In addition to the aforementioned declaration, another declaration must be made for opening of the works (mentioned in 1.2). This filing must include a document indicating the effects of the works on water and, where necessary, the compensating measures to be considered as well as a statement of compatibility between the project and the guiding plan for the zoning and the management of water⁸ mentioned in article L. 212-1 of the Environment Code.

The drilling plan (see 2.1 Drilling activities) sets out the fundamental measures to be implemented to protect groundwater from possible risks of pollution. Moreover, pursuant to article L. 214-3 of the Environment Code, every operation that may be dangerous to health or that may prevent the water from flowing freely, is subjected to a prior authorisation from DREAL.

More generally, the operator has to respect “environmental interests” that fall under the control of the Prefect, pursuant to article L. 173-2 of the Environment Code. Furthermore, the Prefect can order the operator to take certain measures to protect the environment. If the operator does not comply, the Prefect can himself carry out these measures and the operator has to pay the costs. The exclusive research license can even be cancelled by the Minister in certain cases, including where the operator demonstrates a lack of respect for the measures ordered by the Prefect, as detailed in article L. 173-5 of the Environment Code.

TOP

3. Changes brought about by law n° 2011-835

In order to properly understand the law n° 2011-835 of 14 July, 2011, it is also necessary to detail how it was passed (3.1) before analysing its provisions and its implementation (3.2).

3.1 Passing of the law n° 2011-835

In response to demonstrations all around the country, France´s Member of Parliament (MP) Christian Jacob, leader of the Union for a popular movement (UMP), submitted a bill to Parliament on 31 March, 2011, requesting the banning of all exploration and exploitation of shale gas using HF. His justification was based on the precautionary principle, which is indirectly enshrined in the French Constitution.⁹

The opposition had tabbed a bill on shale oil and gas in the Senate on 24 March, 2011 and another one in the National Assembly on 30 March, 2011. Their objective was to reinforce the HF ban with definitions (on HF and unconventional hydrocarbons) and to introduce new public participation regulations into the Environmental Code. The UMP bill was eventually adopted on 13 July, 2011 but the Government decided to use the fast-track procedure in order to satisfy public expectations. The bill was only passed after two votes in each assembly and the session of a joint committee. This exemplifies the intensity of the debate. It became Law n° 2011-835 but did not immediately nullify all the research permits as initially proposed to the Parliament.

The decision-making process of this bill was impacted by the context of upcoming senatorial and presidential elections. Members of Parliament chose to pass a bill specifically on HF while experts argued for amendments to the Mining Code in general, which also applies to shale oil and gas exploration and exploitation.

The Code, which dates back to 1956, imposes drilling standards that were adopted by decree over the years and have been proven to be suitable for the regulation of HF for the exploration and exploitation of resources other than shale oil and gas. However, experts argue changes would have been useful, to implement a procedure more in line with environmental law and giving more importance to public participation.

Additionally, law n° 2011-835 was adopted in advance of the publication of the final report from a group of experts from the CGIET¹⁰ and the CGEDD¹¹, which were appointed in February, 2011 to help the Government make a decision on shale oil and gas. The group only published its provisional report in April, 2011. The report highlighted a number of issues, including the impossibility of making a rational choice without knowing the extent of the resources available in France. This report actually advised taking more time to improve the quality of the law based on a better knowledge of the subject.

The French Minister of the Environment commissioned a lawyer in April, 2011 to prepare another report on the reform of the Mining Code, present suggestions on how to update it, and in particular provide a mechanism for better public participation in decision-making. This report put forward several suggestions regarding further amendments to the Code, notably:

a restructuring of the administrative organisation of the State and of the division of competences between the State and local authorities to better articulate mining law and environment law;
an intensification of public participation in allocating mining permits;
the creation of a High Council on Mining Resources, bringing together the State, local authorities, unions, non-governmental organisations and companies to improve the dialogue with civil society;
the strengthening of the environmental evaluation of drilling projects;
the development of education, research, and information of the public on mining debates.

The numerous public protests linked to shale gas were partly a result of the public having insufficient influence or knowledge on the legal process in the allocation of research permits. The aim of the reforms suggested by the lawyer is to use the notion of “ecological democracy” to bridge the gap between mining law and environmental law. The report, however, was delivered in October, 2011, three months after the law n° 2011-835 was adopted. In this way, a partial reform was put into effect instead of the suggested encompassing reform.

Such all-encompassing reform was also favoured by the two MPs appointed by the National Assembly (“rapporteurs”) to work on the bill that became law n° 2011-835. The issue was still politicised, as highlighted by the conclusion of this last information report on shale oil and gas. This report had two conclusions - one for each Author. This is extremely rare in France, especially for an information report, and highlights the partisan nature of the debate.

Despite the different experts’ and MPs’ reports favouring an evolution of the existing legal framework to adapt it to HF, the prohibition of HF was enacted but no definition of HF was provided. Please see below for further on this.

3.2 The content of law n° 2011-835 and its implementation

The law has only four articles. The first one provides for the prohibition of HF, the second one for the creation of a special commission, the third one for reports by the operators and the last for a yearly report to be submitted to the Parliament.

(a) Prohibition of HF

Article 1 prohibits the use of HF for the exploration and exploitation of shale oil and gas. It is the flagship provision of the law. The expression “hydraulic fracturing” is found throughout the text. Yet some observers noted that the law contained a loophole, as it did not provide any definition of the technique. The use of “hydraulic fracturing of rocks” for the exploration or exploitation of “liquid or gaseous hydrocarbons” is forbidden.

In this way, only the main use of HF is forbidden, but not HF itself. This lack of definition results from a compromise, which opens the possibility to implement experiments and scientific research under public supervision to define HF and evaluate its effect on the environment. However, the conditions for these experiments have not yet been approved or defined.

After the law was passed, several bills defining HF were tabbed by the French Socialist groups in the Senate and National Assembly. Indeed, they believed that the law passed in July did not go far enough because of the lack of definition of HF, leaving the door open for experiments and research on HF. One of the bills was rejected by the National Assembly, which enjoys a majority of MPs belonging to one party. The second one is still to be discussed by the Senate but has not yet been scheduled.

(b) Creation of a special Commission

Pursuant to article 2 of the law n° 2011-835, a commission shall deliver an opinion on the conditions of implementation of research-oriented experimentations, as provided for in article 4 of the law. This opinion will be made public. The order detailing the composition, mission and functioning of this National Commission on the Orientation, Monitoring and Assessment of the Exploration and Exploitation Techniques of Liquid and Gaseous Hydrocarbons (hereafter referred to as the “Commission”) has not yet been published.

The order must further detail the composition of the Commission. Currently, the law only provides limited provisions. The Commission is to be composed of one MP and one Senator and representatives of the State, local authorities, associations, employers and employees of the relevant industries. The respective weight of each of these members in the Commission could influence the opinions it will give.

The importance of this Commission is best understood in the context of the general forbidding of HF. Indeed, it is the only body that could allow an operator to use HF, for the sake of “scientific research”. Yet, “scientific research” could equally mean research on HF or research resulting from HF. The order will detail the scope of the authorisations the Commission can give, hence its crucial importance.

(c) Operators’ reports

Article 3 requires all the operators that have received a permit to submit a report to the Government stating which techniques are to be used for the exploration of liquid or gaseous hydrocarbons. Article 3 further provides that if such a report states the operator will or might use HF, the permit will be cancelled. 64 reports were sent, most of them covering exploration permits for conventional oil and gas.

On the basis of those reports, three research permits were cancelled by the Ministry for the Environment under law n° 2011-835. Two operators, namely Schuepbach Energy LLC and Total SA, failed to convince the Government that they would not use HF in their research. Consequently, their permits were cancelled. Schuepbach explicitly stated it would use HF while Total’s report was deemed “not credible” by the French Minister of the Environment.

Schuepbach’s CEO declared that the company would challenge the decision of the Ministry before the French Administrative Judge. There are two ways for the company to do so: going to court, which would probably trigger Government anger against a company that needs political support in France and abroad, or by asking the Minister for the Environment to reconsider his decision. These cancellations were the main direct effect of law n° 2011-835.

(d) Yearly report by the Commission

Pursuant to Article 4 of law n° 2011-835, an annual report is to be submitted by the Government to Parliament on:

Developments in the techniques of exploration and exploitation of shale oil and gas;
Changes in other countries’ legal frameworks in order to adapt the French legal framework;
the conditions of the experiments on HF that took place under public control.

The wording of this Article is important as it opened the door for subsequent changes to the law, in relation to developments with varying techniques. The law forbidding the use of HF leaves the door open to scientific research on this technique and a yearly review of it. In theory, it then provides the operators with the tools to challenge its relevance. This article discusses challenges to validity of this law in Section 4.

TOP

4. Challenges to the validity and constitutionality of law n° 2011-835

France is the first country in the world to officially ban the use of HF in exploration and mining research and projects. The implementation of law n°2011-835 and its ban on hydraulic fracturing was the source of much debate in 2012 and 2013. French authorities were separated on the issue of HF with opponents of the law recommending that more studies be conducted to conclusively identify the benefits and risks associated with HF. This is demonstrated by the July, 2013 report of a French parliamentary commission, which asserted that the exploration and use of shale gas could create 100,000 jobs and improve competition in the country. If deemed safe, the use of shale gas could not only help to reduce France’s dependence on nuclear and other sources of energy but could also significantly boost its economy.

Proponents of the law, however, rejected the idea of relaxing a ban on HF on the basis that the environmental risks, such as seismicity and pollution of groundwater, remained unverified. French Minister of Ecology, Sustainable Development, and Energy Delphine Batho stated that due to the unknown threats that it posed to the environment, the ban should remain in place until substantial evidence disproves the existence of these and other potential risks. These debates were furthered heightened by litigation and concurrent European Parliament debates calling for further regulation of shale gas and oil and resulting in the rejection of a proposed ban on hydraulic fracturing.

4.1 Arguments presented before the Constitutional Court in opposition to the HF ban

Schuepbach, which had won two permits to explore shale gas in France prior to the implementation of law no°2011-835 openly protested the revocation of these permits. In response, the company formalized its objection to this action by filing an appeal before the Conseil d’Etat, France’s highest administrative court. In its appeal, the company asserted that there was insufficient proof that HF could result in environmental dangers. Schuepbach further challenged the cancelation of its permits by asserting that law n° 2011-835 and the subsequent cancellations were contrary to the following four legal principles: (1) equal treatment; (2) freedom of enterprise; (3) right to property; and (4) Articles 5 and 6 of the Environment Charter¹².

After a preliminary review of the claim of Schuepback, the Counseil d’Etat referred the matter to the Cour Constitutionnel (Constitutional Court) after determining that the case involved some questions of law pertaining to the guarantee of rights granted under Articles 1 and 3 of the French Constitution. The Cour Constitutionnel rejected these four complaints presented by Schuepbach and held that the ban of HF and subsequent revocation of permits held by Schuepback are valid for following reasons:

Difference in treatment: the Cour Constitutionnel noted that the intent of law n° 2011-835 is to prevent the dangers that research and exploitation of hydrocarbons may pose to the environment. According to the Court, this difference in treatment between HF and other forms of geothermal exploration is directly related to the purpose of the law, as the latter process has been determined to have no detrimental effects on the environment.
Infringement on Freedom of Enterprise: law n° 2011-835 establishes an administrative and legal framework that prohibits HF for all research and exploitation of hydrocarbons. Moreover, the goal of this law is to ensure the general public interest of environmental protection. The law and its reporting requirements are proportionate in this regard and thereby do not constitute an infringement on freedom of enterprise.
Right to property: the revocation or denial of permits is the direct consequence of the permit owner’s explicit use of hydraulic fracturing or inability to meet reporting requirements. The Court held that this does not interfere with a legally acquired right to obtain and hold a permit. Furthermore, authorisations granted by an administrative authority cannot be treated as personal property.
Articles 5 and 6 of the Environmental Charter: these issues were ruled as not raising constitutional questions and were therefore not addressed by the court on the basis of forum non conveniens.

4.2 France’s role in the global debate on HF

Following the issuance of this decision, France’s Minister for the Environment, Philippe Martin proclaimed the decision as an environmental and political victory, saying “with this decision the ban on hydraulic fracturing is absolute.” While several oil and gas lobbying groups have criticized this decision as depriving France of the opportunity to benefit from nonconventional carbon resources, it is clear that the decision has been approved by the country’s Executive. According to President Français Hollande, this ban will remain in place throughout his presidential term and beyond.

If implemented in the U.S., a similar decision would have had wide-scale economic implications. Shale gas has helped to reshape the domestic landscape for energy production in the country. This dramatic increase in production has also allowed the U.S. to redefine its role in international energy markets, as it is in line to shift the balance away from its dependence on external sources of natural gas by 2015. The country will also likely begin to export this product in the near future if production remains at its current levels.

Despite the fact that the long-term effects of HF are still largely undetermined, this procedure has now become the source of debate in the European Parliament as the legislative body seems hesitant to follow France’s lead. According to EU reports, total shale gas reserves in the EU exceed 56 thousand billion cubic metres (BCM) and more than 14 BCMs are deemed technically recoverable. Many of these reserves are located in France. France is joined by Bulgaria, however, who has also instituted a ban on hydraulic fracturing in an effort to further it environmental protection goals. Other countries, like Poland, fully endorse the implementation of a relaxed legal framework governing the research, exploration and exploitation of hydrocarbons.

In order to accommodate the differing approaches of each Member State, the European Parliament passed resolutions in September, 2012, granting each Member State the right to determine whether shale gas exploration will be allowed within its territory. The resolution further requires each Member State to create a strict and robust legal and regulatory framework where exploration is allowed. The court decision, upholding France’s ban, is therefore consistent with this.

4.3 Recent developments in the HF debate in France

Lately, a report (link) related to heptafluoropropan fracturing was published in April 2015. This report, composed in 2013 by Arnaud Montebourg, former “Ministre du Redressement productif ” (similar to minister for industry), describes how France could benefit in terms of growth, employment, industrial competitiveness, and energy independence from the development of this substitute to water-based HF.

Ségolène Royal, current minister of the Environment, immediately replied by expressing her opposition to shale gas, and assured that she will refuse all applications concerning shale gas drilling.

Moreover, a recent study published in April 2015 by the French Economic Observatory ("Can the US Shale Revolution be duplicated in Europe?") aims to contradict the fact that shale gas exploitation would be profitable in France.

In addition to this, a new national strategy for the ecological transition was adopted in February 2015 for the 2015-2020 period. This strategy reaffirms the current French opposition to shale gas exploitation.

TOP

5. Conclusion: a legal framework to be reformed and modernized

Although the French legal framework for shale oil and gas in general and HF in particular has been officially settled, debates continue within the European Union and internationally. Despite law n° 2011-835 enacting the banning of HF for the exploration and exploitation of shale oil and gas, much still remains to be decided since several important technical reports have not yet been finalized. One bill on shale oil and gas still remains to be considered by the Senate, even though it stands little chance of going through the National Assembly.

Further orders detailing and clarifying the law may have a crucial importance for the future of shale oil and gas in France. Moreover, the law n°2011-835, through its requirement for annual reports, opens the way for changes in the established legal framework following technical and regulatory developments. One could argue that the postponing of those questions has one benefit: it defers the debate, making room for better informed decision making.

Update November 2015: read the article "What´s to become of France´s troubled fracking commission?" (Weblink)

¹In April 2011, Jean-Louis Borloo, who took back his position as a Member of Parliament, tabbed a bill aiming at cancelling all the permits delivered.

²An impact notice is more restrictive than an impact assessment.

³DREAL: direction régionale de l’environnement, de l’aménagement et du logement.

⁴The Minister of Environment has the possibility, according to the Environment Code, to ask for the completion of an environmental impact study. However, this has never been done by the Minister.

⁵The General Regulation for Extractive Industries (”réglement general des industries extractives”, RGIE).

⁶The RGIE was completed by the order of 22 March 2000.

⁷The New Mining Code is a compilation of mining text that is still uncompleted. It should replace the actual Mining Code after its completion.

⁸SDAGE: “schéma directeur d’aménagement et de gestion des eaux”.

⁹Pursuant to the preamble of the French Constitution, the Charter of Environment has a constitutional value and its article 5 provides for the precautionary principle, as well as article L 110-1 of the Environment Code.

¹⁰General Council on Industry, Energy and Technology, a public institution.

¹¹General Council on Environment and Sustainable Development, a public institution.

¹²Article 5 calls for public authorities to monitor activities upon recognition that said activities may have an adverse affect on the environment and Article 6 establishes the promotion of sustainable development as an important public policy concern.