Offshore licences

The licensing regime is designed to maximise the economic recovery of UK offshore oil and gas.

Exploration licences

A company that wants to explore and does not need exclusive rights to drill or produce can apply for an offshore exploration licence. Exploration licences are useful for seismic contractors who wish to gather data to sell rather than to exploit geological resources themselves, and to holders of production licences who wish to explore outside the areas where they hold or require exclusive rights.

An exploration licence grants rights to explore only, not to produce; and is non-exclusive, covering all acreage outside those areas covered by any of the corresponding production licences that are in force at the time.

The annual payment on an exploration licence is lower than on the corresponding production licences. If the holder of an exploration licence wishes to explore acreage covered by a production licence, permission is required from the holder of that production licence.

The flat rate rental of an exploration licence is £2,000 per year and covers non-intrusive exploration whether carried out for the sake of hydrocarbon production, gas storage, carbon capture and sequestration, or any combination of them.

Exploration licence application form (MS Word Document, 5KB)

Production licences

All offshore production licences have the prefix ‘P’ (eg, P001). Except in special circumstances, offshore production licences run for three successive periods or terms:

Initial term

The licence will expire at the end of its initial term unless the licensee has completed an agreed work programme and surrendered a fixed amount of acreage (usually 50%).

While the initial term is associated with a work programme of exploration work that must be completed if the licence is to continue into a second term, the licensee has the right to start production during the initial term, if the licensee can move quickly enough, subject to normal regulatory controls.

Second term

There is no agreed work programme; instead the licence will expire at the end of its second term unless the OGA has approved a development plan.

Third term

The third term is intended for production. Each licence carries an annual fee, called a rental. Rentals are due each year on the licence anniversary. Rentals are charged at an escalating rate on each square kilometre the licence covers at that date. They are designed to encourage licensees to decide which acreage to retain and to surrender acreage they don’t want to exploit.

Offshore Innovate Licence

From the 29th Licensing Round, all new offshore production licences will become ‘Innovate Licences’, offering greater flexibility for each applicant to design a work programme around particular circumstances.

The innovate licence retains the initial term of previous licence types, which can be subdivided into up to three phases, with the work for each phase being addressed separately in the work programme.

Phase A is a period for carrying out geotechnical studies and geophysical data reprocessing; Phase B is a period for undertaking seismic surveys and acquiring other geophysical data; and Phase C is for drilling.

Phases A and B are optional and depend on the applicant’s plans; all licences will have a Phase C except in special cases where an applicant doesn’t propose any exploration at all and goes straight to the second term, eg, when planning to develop an existing field discovery or redevelop a field where production has ceased.

Licences with a Phase B will expire at the end of this phase if the licensee has not satisfied OGA of its technical and financial capability to complete the work programme or if the work required under Phase B has not been completed, and the licensee must also undertake to complete Phase C.

For licences with a Phase A but no Phase B, the licence will expire at the end of this phase if the licensee has not satisfied OGA of its technical and financial capability to complete the work programme or if the work required under Phase A has not been completed, and the licensee must also undertake to complete Phase C.

The existing model clauses enable OGA to offer many of the features of an Innovate licence but not all of the features that OGA plans to introduce, so in the 29th Round, OGA will offer Licences with just the features described above. We are working on a new set of model clauses for the 30th and subsequent rounds, which subject to consultation and Parliamentary approval, will offer the full Innovate Licence. Existing pre-29th Round licences remain unchanged by the introduction of Innovate licences.

Innovate licence term length

Initial term Variable with maximum of nine years
Second term Four years
Third term 18 years
Mandatory relinquishment at end of Initial Term 50%

Former offshore licence types

  • Traditional Licence

    This licence has been in use since offshore licensing began and is the most common offshore licence.

    Traditional licence term lengths (except for 27th and 28th Rounds when flexible terms were agreed for some licences)

    Initial term Four years
    Second term Four years
    Third term 18 years
    Mandatory relinquishment at end of initial term 50%
  • Promote Licence

    This variant of the Traditional Licence was designed to grant small- and start-up companies a production licence first and to attract the necessary operating and financial capacity later. The difference was seen more in the application process than the licence itself, except that the annual rental rate was reduced by 90% for two years.

    The licence required financial, technical and environmental capacity to be in place, and a firm drilling (or agreed equivalent equally substantive activity) commitment to have been made by the end of the second year or the licence would expire at that time.

    Applicants did not need to prove technical or environmental competence or financial capacity before the award of the licence but they had to do so within two years of the licence start date in order to keep the licence. They were not permitted to operate until they had done so.

    Promote licence term lengths

    Initial term Four years
    Second term Four years
    Third term 18 years
    Mandatory relinquishment at end of initial term 50%
  • Six-year Frontier Licence

    This variant of the Traditional Licence had a six-year exploration phase and was designed to allow companies to evaluate larger areas with greater materiality for a period, so they could look for a wider range of prospects.

    Six-year frontier licence term length

    Initial term Six years
    Second term Six years
    Third term 18 years

    Special mandatory relinquishment of 75% after three years with a mandatory relinquishment at the end of the initial term of 50% of the remainder (making seven-eighths in total)

  • Nine-year Frontier Licence

    This was designed for the particularly harsh West of Scotland environment, and is similar to the existing Frontier Licence but with an Initial Term of nine years.

    Nine-year frontier licence term length

    Initial term Nine years
    Second term Six years
    Third term 18 years

    Special mandatory relinquishment of 75% after six years with a mandatory relinquishment at the end of the initial term of 50% of the remainder (making seven-eighths in total)

The Fallow Process

The Fallow process was devised in 2002 under the auspices of the PILOT Exploration Task Force, set up when activity was at a low level due to the oil price.  Find out further details here.

Note - The OGA has just launched the Asset Stewardship process, where all assets are subject to annual review, so has decided to discontinue the formal Fallow process. No Fallow listing will be published in January 2017 or thereafter.