On Wednesday, 27th January 2010, the Secretary of State for Energy and Climate Change (DECC) invited applications for Licences in the 26th Seaward Licensing Round.
For the first time since 1998, this round offers blocks in all areas of the UKCS for new licensing, some of which were relinquished under the Government and industry's 'Fallow Initiative'. Some of the blocks in the 26th Round have never been explored until now. In addition to this "virgin territory" the majority of the areas licensed in the 1st Round in 1964 that have not been allowed extensions have been relinquished and are included for offer in the 26th Round. The Areas include: West of Shetland; Northern North Sea; Central North Sea; Southern North Sea; Morecambe Bay and Irish Sea; West of the Hebrides; South West Approaches and the English Channel. Some blocks, however, have been excluded. These include blocks west of the island of Rockall, northwest of Scotland and various blocks offered in the 24th Round.
It is known that production from the readily available resources is in decline and that in order to continue producing oil and gas within the UK continental shelf exploration in much more demanding environments will have to be undertaken. It is estimated that there are around 20 billion barrels of oil equivalent, or potentially more, that have yet to be produced and that the deep Atlantic waters hold around a fifth of the remaining reserves.
The Government has introduced a new Frontier licence with an extended nine-year exploration term for the West of Scotland area, due to the lack of geographical information available. It is similar to the existing Frontier licence, which has a term of 6 years as its first term. As per the current Frontier licence the rental rate in the first three years is reduced by 90% for these licences. DECC will only consider work Programmes of the Drill-or-Drop type, which carries no commitment to drill. The Licence will, however, expire at the end of the first term if the well has not been drilled. In relation to the West of Scotland Frontier licences, decisions will be made by the end of the sixth year and (if the Licensee chooses to drill) drilling should be completed within the remaining three years.
Concurrent with the 26th Round announcement, the Government announced it would extend its new field tax allowances worth up to £160 million per field to the west of Scotland fields. It is estimated that 2.1 billion barrels of oil and gas are available in the region west of Shetland. Until now these reserves have remained largely undeveloped due to its challenging conditions and water depths of 600 metres or more.
It is hoped that the allowance will encourage investment in this hostile region and spur development of oil and gas reserves in the area. It is hoped, in particular, that this new allowance will spur the development of the Laggan-Tormore project – a gas development situated 140km north-west of the Shetland Islands in waters 600m deep.
Applications must be submitted by 2.00pm on the 28th April 2010. DECC encourages applications to be made through their portal based system called LARRY, although hard copy applications will also be accepted.
To access the 26th Round website page please click here (www.og.decc.gov.uk/upstream/licensing/26_rnd/index.htm).
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
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The original publication date for this article was 29/01/2010.
