UPDATE 1-Britain plans fracking rule change as report shows huge shale oil reserves

Fri May 23, 2014 8:19am EDT

* Proposal allows drilling without landowners' permission

* Billions of barrels of oil under rock formations in south

* Huge shale gas finds in north have fuelled fracking boom

* Britain relies fuel imports as North Sea reserves dwindle (Adds report on reserves, detail, background)

By Sarah Young and Henning Gloystein

LONDON, May 23 (Reuters) - Britain plans to ease rules on accessing shale oil and gas, including drilling without landowners' permission, a move that coincides with a government report suggesting billions of barrels of shale oil may lie underneath southern England.

As the country's North Sea reserves dwindle, hopes are that shale oil and gas will take its place and reduce dependence on imported fuel. The report from the British Geological Survey cites reserves of as many as 8.57 billion barrels of oil, with a central estimate of 4.4 billion.

Britain has extracted about 45 billion barrels of North Sea oil since the 1970s but output has been falling for a decade. In the U.S. the massive expansion of shale gas extraction has driven down energy prices and cut dependence on imports.

"Britain needs more home-grown energy. Shale development will bring jobs and business opportunities," Energy Minister Michael Fallon said in a statement on Friday.

But fracking - drilling and pumping chemicals, sand and water into rocks at high pressure - has triggered tremors and countries including France and Bulgaria have banned it. Lobby group Greenpeace says fracking causes serious environmental risks, especially to fresh water.

Protests in Britain have involved marches and attempts to disrupt oil and gas companies' work. Opposition flared last year in the village of Balcombe, in southern England.

Fracking in the Conservative Party's heartland areas in southern England could prove politically challenging for the senior partner in the coalition government.

To help placate local opposition, the government said on Friday that shale companies had proposed they make a voluntary one-off payment of 20,000 pounds ($33,700) to communities for each well they drill that extends more than 200 metres horizontally underground.

That payment would be on top of the shale compensation payouts already in the offing. The government said last year that the shale industry would have to provide communities located near exploratory wells with 100,000 pounds worth of benefits and 1 percent of the revenue from each production site.

EASY ACCESS, LARGE RESERVES

The government's proposal is to allow companies to drill below 300 metres (328 yards) without permission from landowners, although "hydraulic fracturing would only occur at far greater depths of 1.5 kilometre (around 5,000 feet) or more," it said.

A three-month consultation on the plan ends in August.

Ken Cronin, chief executive of the UK Onshore Operators Group (UKOOG), said the British onshore shale extraction legal system "desperately needs updating", as it was delaying projects and created unnecessary costs.

As the law stands, companies have to negotiate rights of access with every landowner living above where they are drilling and that process can take many months or more.

If Britain's reserves are economically recoverable, the shale oil would add to a small shale gas boom, in which companies such as Alkane, Egdon, Cuadrilla, Dart and Island Gas are seeking to capitalise on large reserves found in northern England.

"We've known that there's a big potential for oil and gas explorations across the country but particularly in terms of oil in the Weald Basin which is the area that stretches roughly from Winchester across towards Gatwick, up to the M25 and down to the coast at Chichester," IGAS chief executive Andrew Austin told the BBC.

Some bigger companies, such as British utility Centrica , French oil major Total and French utility GDF Suez have also entered the British shale market. ($1 = 0.5931 British pounds) (Editing by Louise Ireland and Kate Holton)