On 28 July 2014 the UK Government announced the start of the 14th onshore licensing round. The announcement was accompanied by a post adoption statement on the associated Strategic Environmental Assessment (SEA), which closed on 28 March 2014. It was also accompanied by the new model clauses tailored for shale gas exploration and production licences. Licences made available in the 14th round cover areas across England, Wales and Scotland and cover all three of the areas studied so far by the British Geological Survey for potential shale oil and gas reserves. The blocks under offer can be accessed here.
Business and Energy Minister, Matthew Hancock, made it clear that while the licences are the first step towards the right to drill, they do not give any party the absolute right to do so. Licensees will also need planning permission, as well as permits from the Environment Agency before undertaking drilling operations.
Special emphasis is given to areas of Outstanding Natural Beauty, World Heritage Sites, National Parks and The Broads, with the Government's general stance being that applications for major development should be refused in these areas other than in exceptional circumstances and in the public interest. DECC will also require 'Statements of Environmental Awareness' to be produced along with all applications to demonstrate applicants’ understanding of the environmental sensitivities relevant to the area proposed.
Welcoming the announcement, Ken Cronin of UK Onshore Operators' Group said, "Today is another step in the right direction of extracting gas and oil indigenously in the UK, which will reduce our reliance on imports, as well as creating jobs."
2. Current state of the market
Currently the only applications to undertake hydraulic fracturing for shale gas in the UK have been made by Cuadrilla, most recently in respect of sites at Preston New Road and Roseacre Wood in Lancashire, on which Herbert Smith Freehills is acting with respect to the planning, environmental and public law aspects. A small number of other operators are actively engaged in shale gas exploration activities, based on existing licences awarded in previous rounds, the last of which was held in 2008.
There is expected to be widespread interest amongst larger oil and gas companies and we may see the entrance into the market of US operators with experience in the US shale market.
3. Licence changes
DECC has altered the model clauses to be incorporated in new licences. See our separate analysis of the changes here.
The success of the 14th round is expected to provide a barometer of confidence of the industry in onshore upstream opportunities in the UK.
Although public opinion appears to remain divided, the UK Government has shown clear support for the nascent industry, with the House of Lords Economic Select Committee investigation recently lamenting the slow pace of progress and ascribing it mainly to the complex regulatory framework.
The completion of an environmental impact assessment, the interaction of numerous pieces of EU environmental law not drafted with hydraulic fracturing in mind, and the intense scrutiny of all stakeholders of operators' actions, makes such complexity almost inevitable at present. Significant headway is being made, however, although further challenges are to be expected pending the demonstration of successful shale oil and gas exploration and commercial operations.
The 14th round closes at 2.00 pm on 28 October 2014. Applications must be made online through the LARRY system accessible here. While the financial and technical aspects have stayed the same, the Government has modified the previous marks scheme, which compares competing applications, to ensure a fair and transparent process to award licences to the applicants best suited to progress shale oil and gas exploration and development. More marks are available for studies and data collection relevant to shale and commitments to drill horizontal wells or hydraulic fracturing, while new elements of company experience and capability are added.