UK energy minister welcomes "strong response" to latest offshore oil and gas licensing round

Out-Law News | 08 May 2014 | 12:39 pm | 2 min. read

Interest in oil and gas exploration on the UK Continental Shelf (UKCS) remains "extraordinary" despite falling production, the country's energy minister has said, after the latest licensing round closed with 173 applications.

Michael Fallon said that the Department of Energy and Climate Change (DECC) would now scrutinise applications, with a view to awarding rights to around 370 blocks in the autumn.

"It's 50 years since North Sea licensing began and there remains an extraordinary level of interest, which is excellent news for industry and for the UK economy," he said.

"We have committed to implementing all of Sir Ian Wood's recommendations to help maximise recovery of North Sea oil and gas, and the Chancellor is reviewing the tax regime. Making the most of Britain's home grown energy is crucial to keep job and business opportunities, get the best deal for customers and reduce our reliance on foreign imports," he said.

Applications under the 28th offshore oil and gas licensing round closed on 25 April. The number of blocks available under this round was slightly smaller than the 418 blocks available in 2012 and the 378 blocks awarded in 2010; the highest numbers since licensing began in 1964.

The UKCS has already produced the equivalent of 42 billion barrels of oil and gas, but production has dropped in recent years as smaller companies work to exploit remaining supplies located in smaller, harder-to-access fields and 'brownfield' sites. Although production has fallen by 40% and production efficiency by 60% in the last three years, according to UK government figures; it has estimated that at least 20 billion more barrels of oil equivalent (boe) could still be produced.

As part of this year's Budget, the government committed to a review of the UK's tax treatment of the North Sea in order to "ensure that it continues to incentivise economic recovery as the basin matures". This review will be carried out in conjunction with a new arm's length, industry funded oil and gas regulator, the creation of which was recommended by industry expert Sir Ian Wood in his recent report on how to maximise recovery of remaining North Sea oil and gas reserves.

The government, which has accepted Wood's recommendations in full, has also introduced a number of incentives designed to boost production in more expensive and harder-to-exploit areas over the past couple of years, as well as introducing decommissioning relief deeds (DRDs) to provide operators with some certainty as to the level of tax relief they will receive on future asset decommissioning.

Scottish oil and gas firms are expected to secure contracts overseas worth £100 million over the next three years according to Scottish Enterprise. Reporting ahead of this year's Offshore Technology Conference in Houston, Texas, Scottish Enterprise said that companies that participated in last year's conference reported increased international revenue. Over 60 companies and organisations representing a cross-section of the Scottish oil, gas and offshore renewables supply chain will attend this year's conference along with Scotland's energy minister, Fergus Ewing.