License Applications for North Sea Oil & Gas Highest for 35 Years

Twilight years for North Sea? Clearly not, says Energy Minister.

A 35-year record 147 applications by 121 companies for new UK oil and gas exploration and production licenses point to a continuing strong interest in the North Sea, Energy Minister Malcolm Wicks said today, as the 24th Licensing Round applications deadline passed.

Applications for the non-traditional 'Promote' license, specifically designed to encourage newer and smaller firms to enter the sector, exceeded last year's, as did applications for 'Traditional' licenses.

The oil and gas Government and industry partnership PILOT's annual report, also published today, describes improvements to the business climate for smaller oil and gas firms in the 2005/6 period. PILOT-Government innovations like the non-traditional licenses have fostered growing investment in the sector, it comments.

Emphasising the Government's commitment to maximise the exploitation of the UK's remaining North Sea oil and gas Malcolm Wicks said:
"Some say the North Sea is in its twilight years. But the record numbers of license applications belie this.

"Interest in the North Sea is still high because determined companies realise that our remaining reserves almost match what we have already exploited.

"Lately the spotlight has rightly been on cleaner energy - renewables and nuclear - but we still need oil and gas and this surge of interest in the North Sea reflects that."

"New technologies now make it easier to tap previously hard-to-reach reserves.

"The UK is on-track to meet its PILOT-agreed 2010 production target."

The DTI hopes to make license offers in the autumn.

The 24th Oil & Gas Licensing Round closed on June 16, 2006.

License applications data:

                                   23rd Round  24th Round
Applications Received in all              135         147
Traditional                                68          80
Frontier                                    7           5
Promote                                    60          62
Blocks applied for in all                 279         255
Num Companies applying                    114         121
Of which new comers                        28          25

License definitions:

'Traditional' license
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.

'Promote' license
The 'Promote' license is offered at one-tenth of the cost of a traditional license for the first two years, to encourage smaller companies with good ideas to apply for acreage and work up prospects to either sell on or bring in other investors. The license offers the Licensee the opportunity to assess and promote the prospectivity of the licensed acreage for an initial two-year period without the stringent entry checks required as part of a Traditional license. 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 (i.e. it will be 15 per sq kilometer). In order to continue beyond the first two years of the Initial Term, the Licensee will be required to submit a report to the Department during the first two years. This report will outline the research and analysis undertaken and include a request to retain the license into the third and fourth year with a commitment that will include the drilling of at least one well, or the conduct of an equivalent agreed substantive activity, by the end of the initial term (i.e. by the end of year four). To be allowed to enter the third and fourth year the deferred financial and environmental checks will need to be satisfied.

'Frontier' license
The "Frontier' License" allows companies to apply for relatively large amounts of acreage and then relinquish three quarters of that acreage after an initial screening phase during which the normal rental fees will be discounted by 90%. Additionally, the Exploration and Development periods will be extended by two years over and above those stipulated for the Traditional license. This license is solely for the acreage west of the Shetland Isles and the outer Irish Sea, comprising the areas 1, 4 and 5 of the DTI's Strategic Environmental Assessment process.

PILOT is a joint program involving the Government and the UK oil & gas industry operators, contractors, suppliers, trade Unions and SMEs, aiming to secure the long-term future of the Industry in the UK. It is the successor to the Oil & Gas Industry Task Force (OGITF) which was established in 1998 in recognition of the dramatic fall in oil prices, the maturing of the UKCS, and the urgent need to reduce the cost base of activity in the basin.

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