Exploration v. Production: Court of Appeal reiterates distinction in hydrocarbon permits

Introduction

On 16 April 2025, the Court of Appeal ('CoA') dismissed Frack Free Balcombe Residents' Association's (the 'Appellant') appeal challenging Angus Energy Weald Basin No.3 Ltd.'s ('Angus Energy') hydrocarbon exploration permits in West Sussex (see judgment here).

This is one of several recent cases where consents for exploration phases are being contested due to the potential harms of future production on the environment, seeking to test the limits of the landmark UK Supreme Court decision in R (Finch) v Surrey County Council.

The proposal in this case was for exploring and appraising a site in the High Weald Area of Outstanding Beauty ('High Weald AOB') for Lower Stumble hydrocarbons. It was planned under a 30-month temporary permit, in four phases with the final phase involving restoring the site after testing, if no commercial production were to follow. The key question before the CoA was whether the failure to consider the effects of a possible future development of commercial production in granting planning permission for exploration was an error of law.

Following its decision in Preston New Road Action Group v. Secretary of State and Ors. [2018] EWCA Civ 9 the CoA has reiterated that the effects of possible future commercial production do not need to be taken into account when making a decision to permit exploration of hydrocarbons, on the basis that any benefits or harms of production would be assessed at a later stage in a separate process.

 

Background

Any decisions on development for exploration permits are determined according to the development plan and policies of the local mineral planning authorities. In this case, the relevant policy provided that major proposals for exploration of oil and gas would not be permitted in the High Weald AOB unless it was demonstrated that there were exceptional circumstances and that it was in public interest.

Angus Energy's application for planning permission was refused by West Sussex Council's Planning Committee who concluded that there were no exceptional circumstances warranting the project and there were alternative sources of hydrocarbons that could be used to meet the UK's national energy requirements. The Secretary of State overturned this rejection on appeal. The Appellant brought statutory review proceedings against the decision of the Secretary of State on six grounds before the High Court, which rejected all grounds of challenge.

The CoA considered an appeal on some of those grounds.

 

Court of Appeal decision

Obligation to account for harms from production when granting exploration consent?

The Appellant argued that the High Court had wrongly concluded that the decision maker did not take into account the benefits of future commercial production and therefore did not need to take into account any corresponding harms.

This was rejected by the CoA, following its previous ruling in Preston New Road Action Group. The CoA reiterated that 'exploration' and 'production' were distinct operations in hydrocarbon development, as recognised in national planning policy and associated guidance. The relevant development policies also provided for addressing proposals for 'Exploration and Appraisal' separately from proposals for 'Production' and an application for exploration was to be judged on its own merits without speculation or hypothetical assumptions of future activities, which would be subject to separate planning permits and environmental considerations.

The CoA found that the decision maker had been aware of and had in mind the distinction between 'exploration' and 'production'. The fact that the decision recognised the importance of energy security and maintaining sufficient domestic oil and gas reserves, and therefore the inherent advantage in hydrocarbon exploration and appraisal which would establish whether a commercially viable resource was present, did not cut across this distinction. The decision maker gave weight to the benefit of exploration and appraisal as an activity in its own right, but not to the supposed benefits, or the supposed harm, of a project of commercial production on this site in the future.

The CoA firmly rejected the argument that ascertaining the commercial viability of a site for hydrocarbon development is only beneficial because future production will itself be commercially advantageous, and that the likely effects of production must therefore be taken into account when a proposal for exploration and appraisal alone is being considered.

The CoA held that the decision to grant planning permission because the need for energy supply security pending transition to net-zero outweighed the harm that the development would cause in the High Weald AOB was sound and in line with applicable law.

Interestingly, the CoA also dismissed the idea of getting "a foot in the door" by obtaining planning permission for a development of exploration and appraisal before going on to seek permission for a development of production as "a false concept". Fears about setting a precedent or presumption favouring approval of any future production application were not thought to be well founded by the CoA, which pointed out that the two applications would raise different considerations and have to be assessed on their own separate merits, in light of relevant policy at the time.

 

Failure to consider alternatives outside of the High Weald AOB?

The Appellant also argued that in applying the 'exceptional circumstances' test for 'major development' in the High Weald AOB, the Secretary of State failed to properly consider alternatives outside the High Weald AOB and had therefore misapplied the test.

The CoA rejected this argument, explaining that the relevant policies allowed the decision-maker discretion to adapt the assessment of alternatives to the type of proposed development. The CoA held that given the proposal dealt with the exploration of the Lower Stumble hydrocarbon, the purpose was to establish whether a commercially viable resource was present in that location. The decision noted that the hydrocarbon could not be explored outside the High Weald AOB and concluded that it would not be appropriate to rely on alternative imported oil supplies. The CoA found that the decision maker had adequately considered the effects of development on the High Weald AOB, the availability and costs of alternatives and potential detrimental impacts in line with the relevant policy.

For these and other reasons the CoA ultimately found that there was no public law error in the Secretary of State's decision, leading to the appeal being dismissed.

 

Conclusion

This case reiterates the difference between 'exploration' and 'production' phases of hydrocarbon exploration and serves as a reminder of the different considerations in assessing proposals for each phase.

In Finch [2024] UKSC 20, the UK Supreme Court found that Scope 3 greenhouse gas emissions must be assessed under the Environmental Impact Assessment ("EIA") Regulations when granting planning permission for 'production' of hydrocarbons (see our blog post here). In the light of continued uncertainty as to the scope of the Supreme Court's judgment in Finch, there have been recent attempts to extend the assessment of such emissions to exploration phases, such as Oceana's latest challenge on similar grounds against the granting of 28 offshore oil and gas exploration licenses (see our blog post here).

In this decision the CoA has reiterated that such considerations are not relevant in evaluating proposals for 'exploration', and indeed has emphasised the need for courts to focus on what the relevant decision under challenge actually is in any given situation without venturing into speculation and conjecture as to what any future developments may look like, or broader issues of energy policy.

The authors would like to thank Vidisha Singh for her contributions.