Onshore Drilling: Supreme Court Rules On Compensation For Trespass

In a recent decision which will provide comfort to oil and gas companies, the Supreme Court has upheld the decision of the Court of Appeal in the case of Star Energy v Bocardo SA. Click here to read our Law-Now on the Court of Appeal decision The case concerns compensation for trespass in relation to the drilling of oil wells, and the continued presence of the well casing and tubing within them, underneath someone else's property. The Supreme Court confirmed that such drilling and the presence of the well casing and tubing may amount to a trespass if permission is not obtained from the landowner or granted by a court, but that compensation will in most circumstances be small.

Star Energy held a licence to explore and drill for and extract petroleum under property owned by Bocardo. The wells in question had been drilled along a deviated path from a neighbouring property and only entered Bocardo's property at a depth of 800 ft. The drilling and existence of the wells did not affect Bocardo's use or enjoyment of the property. The Mines (Working Facilities and Support) Act 1966 allowed a licence holder to acquire ancillary rights required to access the petroleum if agreement with the landowner could not be reached. However, neither Star Energy nor the previous holders of the petroleum licence had sought to negotiate rights of access with Bocardo, nor did they apply for such rights under the relevant statutory provisions.

The questions before the court were 1) did the drilling constitute a trespass; and 2) if it did, what was the appropriate measure of damages? The court held as follows:

1. the drilling did interfere with the possessory rights over the land and therefore constituted a trespass. On this point, the Supreme Court upheld the decision of both the High Court and the Court of Appeal;

2. compensation in respect of the compulsory acquisition of ancillary rights over (or under) land should be determined using the same principles that are applied to the compulsory purchase of land. This meant that compensation would reflect what the grantor was losing rather than what the grantee was gaining.

The court considered whether Bocardo could nevertheless benefit from the key value of the right of access which Star Energy required to extract the petroleum. The court referred to the decision of the House of Lords in Waters v Welsh Development Agency [2004] 1 WLR 1304 which reaffirmed that any increase in value in land which was consequent on the...