Trespass and Oil Extraction

The Supreme Court has considered the extent to which a landowner owns the substrata.

Summary. The Supreme Court has considered the extent to which a landowner owns the substrata.

Background. Ownership of oil and gas under land is vested in the Crown, giving it the right to grant licences in exchange for royalties (section 2, Petroleum (Production) Act 1934) (1934 Act). A licence holder has the right to acquire any ancillary rights needed to extract the oil (section 3(1), 1934 Act) (section 3(1)). (The 1934 Act has now been repealed and replaced by the Petroleum Act 1998 (1988 Act). Schedule 3 of the 1988 Act preserves pre-existing licences.)

Facts. S was granted an exclusive licence under section 2 of the 1934 Act for an oil field in Surrey, part of which ran under land belonging to a neighbour, B. To access the whole field, S drilled underground pipelines beneath B’s land without obtaining permission.

B claimed that since it had not given permission, nor had the rights been acquired under section 3(1), the intrusion under its property was trespass. Both the High Court and Court of Appeal agreed that S had committed a trespass and awarded compensation to be paid to B. S appealed.

Decision. The court rejected the appeal and held that a landowner is deemed to be in possession of the substrata. The court considered the principle of medieval law that an owner of surface land also owns everything below and above it, to the centre of the earth and to the heavens. Although this principle has been modified over time to limit land ownership to a height that “interferes with the land’s ordinary use” (thus excluding airspace from land ownership), the court considered that it should not be modified to restrict landownership of the substrata.

The court also rejected that there was a defence to trespass under the 1934 Act. The “ancillary right” under the 1934 Act to drill for oil underneath land does not in itself give the licence holder any right to enter the land, whether above or below the surface.

Upholding the Court of Appeal’s approach to compensation, the court held that it was necessary to consider the value of a right (for example, a right to install pipes) to the landowner, as opposed to the value of a right to the person acquiring it.

Case: Star Energy v Bocardo [2010] UKSC 35.

Article from the Practical Law Company