Types of Licence

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

Types of Licences

All Seaward Production Licences have the prefix ‘P’ (e.g. P001). Seaward Exploration Licences have the prefix ‘E’ (e.g. E001), and Landward Exploration Licences have the prefix ‘LX’ (e.g. LX001). CCS Licences have the prefix ‘CS’ (e.g. CS001) and Gas Storage Licences have the prefix ‘GS’ (e.g. GS001). Other prefixes (e.g. PEDL001, EXL001, PL001, ML001) indicate a Landward Production Licence of various vintages.

Production licences

Except in special circumstances, production licences run for three successive periods or Terms. These Terms are commonly associated with a particular activity – the Initial Term with exploration, for example – but the rights conferred by the Licence do not vary between them, so a Licensee who moves fast enough and secures the necessary permissions and consents would not be prevented from starting production during the Initial Term. The duration of these Terms can be varied, in agreement with the OGA.

Initial Term

The licence will expire at the end of its Initial Term unless the Licensee has completed an agreed Initial Term Work Programme and surrendered a fixed amount of acreage (usually 50%).

Second Term

There is no Second Term Work Programme that is specific to a particular licence; 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.

Offshore Innovate Licence

The Innovate Licence replaces several earlier types of Seaward Production Licence: the Traditional, Promote and Frontier types. The Innovate Licence offers greater flexibility in the durations of the Initial and Second Terms (which was the main difference between the older licence types). An applicant for an Innovate licence is able to propose the durations of the Initial and Second Terms, and among the permutations that may be proposed are those that represent those associated with each of the older licence types.

The Initial Term can now be subdivided into up to three phases, with the Work Programme being correspondingly divided:

  • 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. Every Work Programme must have at least a Phase C (just as a drilling commitment was the minimum Work Programme before the Innovate concept).

It remains the case that a Licence may only continue from the Initial Term into the Second Term if (among other things) the Initial Term Work Programme has been completed and surrendered 50% of the initial acreage. Similarly, an Innovate Licence may only continue from one Phase into another if that part of the Term Work Programme associated with the earlier Phase has been completed and if the Licensee has committed to complete that part associated with the next. When continuing into Phase C, the licensee must also demonstrate the technical and financial capacity to carry out the Phase C part of the Work Programme.

In special cases where an applicant doesn’t propose any exploration at all and proposes to develop an existing field discovery or redevelop a field, a Licence may be awarded with no Initial Term; this is called a ‘Straight to Second Term’ Licence. Again this was an option that was available before the Innovate concept.

Landward Production Licences

Landward Production Licences follow the same pattern as the seaward version except that they contain no equivalent of the special ‘Innovate’ provisions. They are known formally as Petroleum Exploration and Development Licences (‘PEDLs’). The corresponding Model Clauses are at The Petroleum Licensing (Exploration and Production) (Landward Areas) Regulations 2014.

Charges and rentals

Each Production licence carries an annual fee, commonly called a rental. Rentals are due each year on the licence anniversary, and are charged at an escalating rate for 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. They are not calculated by the day, so relinquishments between licence anniversaries do not lead to a refund.

Being a licensee may give rise to a number of different fees and charges to cover the OGA’s costs in processing cases of different sorts – well consents, FDPs, licence assignments etc. There is guidance on this website in appropriate places, and the scale of charges is set out in secondary legislation (see legislation.gov.uk; at the time of writing the latest order is The Oil and Gas Authority (Fees and Petroleum Licensing) (Amendment) Regulations 2017[1]).

Offshore Licensees are liable to pay the Industry Levy[2].

Exploration licences

A company that wants to explore and does not need exclusive rights to drill or produce can apply for an 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. There is a Seaward Exploration Licence and a Landward Exploration Licence.

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.

 

[1] See http://www.legislation.gov.uk/uksi/2017/426/contents/made.

[2] See https://www.ogauthority.co.uk/regulatory-framework/legislative-context/industry-levy/.