The new 'Frontier' license is made available for the first time in the latest offshore licensing round. (See UK Offshore Exploration Reaches Out To New Frontiers from February 10th). This new type of license is designed to increase the amount of oil and gas activity in the West of Shetland region. Much of this region has not been offered for licensing in many years.
Stephen Timms said:
"I am pleased to announce this latest licensing round for the UKCS which is the most extensive of its kind since 1965 - proof of the Government's strong commitment to the region.
"The new Frontier license is just the latest move in our drive to maximize the potential of the natural resources along the UK Continental Shelf. Coupled with the other regions open for offer I am sure the 22nd offshore round will be a clear success.
"Neither should we forget the real opportunities still offered by the onshore area. I am delighted to offer all of the remaining onshore area and keen to see its full potential exploited."
Under the 'Frontier' License, as with the already successful Promote license, the rental fee will be cut by 90% for the first two years compared to the rate for a Traditional Production License. This, together with the extended exploration and development periods will give companies an added incentive to find oil and gas in this new region.
The 'Frontier' license is on offer along with the Traditional and Promote production licenses, as part of the 22nd Offshore Licensing Round. The 'Frontier' license is only available in the West of Shetland region, the Promote license is offered in areas excluding the West of Shetland and the Traditional license will apply to all regions.
This licensing round has opened all of the UK onshore area and 1039 blocks and part blocks in the offshore area for oil and gas licensing opportunities.
The acreage on offer is substantial, and has been covered by Strategic Environmental Assessments (SEAs) 1-4. The DTI's latest Strategic Environmental Assessment (SEA 4) recommended that certain blocks which include mud volcanoes known as the Pilot Whale diapirs, should be considered for exclusion from licensing until they are better understood (particularly the possible presence of seep chemosynthetic communities) or if licensed, should include explicit controls to avoid potentially damaging activities such as anchoring and cuttings discharge".
This recommendation was made since there was limited information available on the diapirs which are potentially of conservation interest. Following discussions with the DTI's statutory conservation advisers, it was decided to offer for license the blocks containing the diapirs but subject to guidance intended to ensure that the features and their potential conservation interest are protected.
The Traditional Seaward Production license has an initial term of four years (for exploration), four more years (to draw up and submit a Field Development Plan), and a production period of 18 years, which can be extended. After the first term the licensee will be required to relinquish at least 50% of the licensed area with a further relinquishment of all acreage not covered by a Field Development Plan at the end of the second term. An applicant for a Traditional License must demonstrate technical, financial and environmental capacity. This allows drilling operations to commence almost immediately, pending necessary consents.
The Promote License is not being offered in the areas West of Shetland (categorized as SEA 1 and 4). The Promote License offers the licensee the opportunity to assess and promote the potential of the licensed acreage for an initial two-year period without the stringent entry checks required as part of a traditional license (Promote Licensees will not, of course, be allowed to do exploration work until those checks have been passed). For the period of this assessment, to a maximum of two years, the license rental fee will be 10% of the rental fee for the traditional license.
The low rental rates of Frontier License in their first two years will allow companies to accept relatively large amounts of acreage, so as to give greater materiality. But they must relinquish 75% of that acreage after two years. Overall the exploration and development periods will be two years longer than in Traditional Licenses, reflecting the greater challenges of working in a frontier area.
Onshore production licenses are called Petroleum Exploration and Development Licenses (PEDLs). They require completion of the agreed exploration Work Program in the first six-year Initial Term. This is a precondition for entry into the Second. Approval of a Development Plan in this five-year Second Term is a precondition for entry into the Third production period.
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