On 24 January 2014, the UK’s Department of Energy and Climate Change (“DECC”) launched the 28th seaward licensing round. Applicants have until 2.00 p.m. on 25 April 2014 to make their submissions.

In this article we briefly reflect on the 27th seaward licensing round, because it gives a useful indication of what to expect, and then consider the guidance provided by DECC in respect of the 28th seaward licensing round.

The 27th Seaward Licensing Round

The 27th seaward oil and gas licensing round was launched on 1 February 2012 and closed for applications 90 days later on 1 May 2012. DECC confirmed a record breaking number of applications for this licensing round and, on 25 October 2012, announced that a total of 167 new production licences had been offered covering 330 North Sea blocks, with a further 61 blocks under environmental assessment. On 29 November 2013, a second tranche offering 52 production licences was announced, bringing the total number of production licences in the 27th licensing round to 219. This was 29 more licences than were awarded in the 26th offshore licensing round.

Four types of production licence can be awarded during an offshore licensing round: the promote seaward production licence (“Promote”); the traditional seaward production licence (“Traditional”); the six-year frontier seaward production licence (“Six-Year Frontier”); and the nine-year frontier seaward production licence (“Nine-Year Frontier”). Production licences cover exploration, appraisal and production activities. In the first tranche of 167 offers in the 27th licensing round: 29 were for Promote; 131 were for Traditional; 6 were for Six-Year Frontier; and 1 was for Nine-Year Frontier. The acreage offered consisted of the West of Shetlands area, the North Sea Northern area, the North Sea Central area, the North Sea Southern area and the West of Scotland.

In the second tranche of 52 offers in the 27th licensing round, 10 were for Promote and 42 were for Traditional. The acreage offered consisted of the West of Shetlands area, the North Sea Central area, the North Sea Southern area, the English Channel, and the North Channel and Morecambe Bay.

The 28th Seaward Licensing Round

Applicants have been invited to apply for the four types of offshore production licence in the 28th seaward licensing round. The acreage on offer consists of: the Northern North Sea area; the Central North Sea area; the Southern North Sea area; the Irish Sea and Morecambe Bay; the West of Hebrides; the South West Approaches; and the English Channel, covering a total of 2,728 seaward blocks. Unless an environmental assessment in relation to a particular block is required, any offer by the Secretary of State for Energy and Climate Change (the “Secretary of State”) of a 28th seaward production licence will be made by 10 January 2015.

Licensing applications for the 28th licensing round can be made by a single company or consortium of companies. Any company applying for a licence has to be registered in the UK, either in its own right or as a branch of a foreign company. Only companies with the requisite financial capacity to carry out the licence’s work programme and meet specific costs, technical capability to complete the proposed work programme, and environmental capability, will be considered for Traditional, Six-Year Frontier or Nine-Year Frontier licences. In addition, the Secretary of State will not award a licence unless he is prepared to approve the applicant’s choice of operator at the same time. In respect of Promote licences, the licensee’s financial and technical capacity will instead be assessed over a two-year period after the licence has been awarded and not before, and there is no requirement to include an environmental submission with the application. Each company applying for any type of production licence also needs to demonstrate its basic financial viability, meaning that it has to show its ability to remain solvent, before a licence is granted. Applications therefore need to reflect the minimum criteria requirements established by DECC.

All 28th seaward licensing round applicants must submit their applications electronically through the Licence Applications Repository portal system, otherwise known as “LARRY”. A single application must only cover one type of licence (i.e. either Promote, Traditional, Six-Year Frontier or Nine-Year Frontier) and the list of companies, their proposed participating interests and the identity of the operator needs to be consistent if the single submission covers applications for multiple blocks within the same type of licence. The application fee for seaward production licences is £2,100 and can be paid through the LARRY system.

Applicants can raise questions with DECC in connection with the 28th seaward licensing round by emailing Jen Brzozowska (DECC’s Exploration Manager) and Ricki Kiff (DECC’s Licence Round Co-ordinator). Questions and answers will be split between policy issues concerning the 28th licensing round and the LARRY system, and any answers provided by DECC will be made publicly available.

The Secretary of State has full discretion in deciding whether or not to award a seaward production licence, but will always make its decision in accordance with published policies and objectives. According to DECC’s guidance, applicants are usually interviewed on the geotechnical work already undertaken, their technical understanding of the acreage and the proposed work programme, giving DECC an opportunity to raise questions with, and seek clarification from, applicants. This is always the case where there is competition for the same acreage. Each application is assessed against a marks scheme and usually a licence will be awarded to the applicant with the highest mark. An applicant’s technical understanding and its proposed work programme are two of the main factors that DECC will consider when judging between competing applications.

Further Information

The information summarised in this article and more information on the 27th and 28th seaward licensing rounds can be found at: https://www.gov.uk/oil-and-gas-licensing-rounds.