UK Energy Minister Announces New Approach to Exploration

A new type of license designed to increase the amount of oil and gas activity in the North Sea was announced on February 5th by U.K. Energy Minister Brian Wilson.

The 'promote' license is being launched, along with the traditional production license, as part of the 21st offshore licensing round.

Under the 'promote' license the rental fee will be cut by 90% for the first two years compared to the rate for a traditional exploration and development license, giving smaller newcomers the opportunity to find oil and gas. Rental fees for promote licenses are £15 per square kilometer, as opposed to the traditional license fee of £150.

'Promote' will give the holder time to assess the license area for oil and gas before 'promoting' their asset to investors to finance the cost of drilling and undertaking a commitment to do further work.

Speaking from the Sanderstolen Energy Conference in Norway, Energy Minister Brian Wilson said:

"Making the most of our North Sea resources remains a high priority and the UK Continental Shelf still has much to offer. The promote license will bring down barriers to exploration and ensure that the UK's valuable hydrocarbons are exploited to their maximum potential.

"From the interest shown from the industry and the geoscientific community during the 'promote' consultation, I am confident the 21st licensing round will be a clear success."

The format for the promote license was developed following an industry-wide consultation in late 2002, to which over 60 companies and organizations responded.

While arrangements for traditional licenses remain unchanged, a promote license will lapse after 2 years unless a substantive work program - normally the drilling of a well - is agreed.

The new promote license does not apply to onshore exploration and development.

The acreage on offer is substantial, to include areas covered by Strategic Environmental Assessment (SEA) region 2, SEA 2 extension, and SEA 3.

The Traditional Seaward Production license has an initial term of 4 years (for exploration), 4 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. The Traditional license requires necessary finances to carry out the agreed work program be in place before a license is given. This allows drilling operation to commence almost immediately, pending necessary consents. The promote license defers this financial check until a later point to allow for the potential to be promoted to organizations able to assist in financing of the cost of drilling.