The latest North Sea licensing round for oil and gas was launched on 1 February 2012 by the Secretary of State for Energy and Climate Change and closed for applications on 1 May 2012. The 27th Licensing Round has broken all previous records for the number of applications received by the Government with 224 applications submitted covering the 418 blocks of the United Kingdom Continental Shelf. This is the largest number since offshore licensing began in 1964 with 37 more applications than the previous highest total in 2011.
This illustrates an increasing interest in the exploration, development and production opportunities in North Sea oil and gas. One reason for the interest may be the £3 billion field allowance introduced by the Government in the Budget Statement in March, designed to stimulate investment in the North Sea. Combined with this is the sustained high oil price which makes the development of smaller, more marginal fields potentially economic.
More specifically the 2012 application round has seen an increase in traditional licence applications, by 39 to a total of 192, and frontier licence applications, by 4 to 7. In particular, the rise in frontier licences could be linked to the Government introducing, in 2010, an extended nine year exploration term. It was hoped that the extension would encourage development for new discoveries made in the West of Shetland region and the increase in frontier licence applications appears to show a strengthening interest in tapping the potential of this region.
Despite there being a general rise in licence applications, there has been a decrease in promote licence applications, by 6 to a total of 25. One reason for this could be that fewer smaller companies are seeking investment opportunities in the North Sea due to the uncertainty in the economy over the next two years.
So, what will happen in the future? There is an estimate that over 20 billion boe of oil is left in UK waters so there is still potential for further development in the oil and gas sector in the North Sea. Despite declines in recent years, domestic production of oil and gas from the North Sea continues to account for nearly 50% of the country's oil and gas consumption and further development will slow the growing reliance on imports. However, this will require continued confidence in the fiscal and regulatory regime. The budget changes this year were positive and it is hoped that by the time of the next licensing round, the industry will also be benefitting from greater clarity as to the guarantee of decommissioning tax relief on which the Government announced its plans to consult in the 2012 budget. This could encourage further investment, particularly if the oil price remains high.
The official announcement of licence applications for the North Sea can be found here.