New Licensing Round Opens Up Entire UK North Sea

For the first time since 1998 the whole of the North Sea will be open for oil and gas exploration with a record breaking 1,329 blocks on offer in the 23rd Offshore Oil and Gas Licensing Round announced today by UK Energy Minister Mike O'Brien.

More than 50 previously fallow blocks will be on offer in this round that were not available in the previous round demonstrating that the Government and Industries 'Fallow initiative' to stimulate activity in the North Sea is working.

The Government's recent innovations in licensing will again be available in this round with the new 'Frontier' and 'Promote' License being offered alongside the more traditional type license.

UK Energy Minister Mike O'Brien said:

"The innovative Promote and Frontier licenses that we introduced in recent years, and which are on offer in this round, mark another milestone in our commitment to exploit the UK's oil and gas resources on the UK Continental Shelf.

"This 23rd License Round includes new areas that have not been available for some years. Together with the results coming out from the Fallow initiative, this reflects the Government's drive to developing and sustaining this vital industry and the jobs that come with it."

Recognizing the particular challenges in the West of Shetland region, the 'Frontier' license is only on offer in this area, whilst the Promote license is offered in areas excluding the West of Shetland: the Traditional license will apply to all regions.

Under the 'Frontier' and 'Promote' Licenses, 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 on the 'Frontier' License, will give companies an added incentive to find oil and gas in new regions.

129 whole or part blocks were relinquished in 2004. Many of these relinquishments are the result of the PILOT Fallow Initiative which required that once the primary term of the license has passed, the companies must have drilled wells, shot new seismic or had other significant activity to continue to hold acreage. More than 50 previously fallow blocks will now be on offer in the 23rd Round. These blocks were under review in the fallow process in 2004 and were not available for licensing in the 22nd Round.

The 23rd Offshore Oil and Gas Licensing Round is published in the Official Journal today. The acreage on offer is substantial, and has been covered by Strategic Environmental Assessments (SEAs) 1-5. Findings of the assessments can be found at http://www.offshore-sea.org.uk. For more details about the specific blocks on offer in the 23rd Licensing Round, visit http://www.og.dti.gov.uk/upstream/licensing/23_rnd/index.htm.

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, 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 operations 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.

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