UK’S LICENSING REGIME By RICHMOND OSEI-HWERE FACULTY OF LAW, KNUST

2  The rights to oil and gas in the UK on land and underneath the territorial sea and the UK Continental Shelf are vested in the Crown under the Petroleum Act 1998 and are managed by DECC.  Case: Star Energy v Bocardo [2010] UKSC 35  Petroleum Act 1998  Part 1 of the Petroleum Act 1998 (and before it, the 1934 Act) vests all rights to petroleum in the Crown, including the rights to search for, bore for and get it. It then goes on to empower the Secretary of State to grant Licenses to search for and bore for and get petroleum to such persons as he thinks fit.

3  As with any licensing system, many of the detailed regulatory provisions are laid down in conditions attached to the licences. The Petroleum Act is rather unusual in that it requires these conditions [“Model Clauses”] to be published first in the secondary legislation. Up to the 19 th Round, the model clauses were incorporated into licences by means of a single short paragraph, out from the 20 th round onwards they have been set out in full in the licence itself, for the sake of clarity. It is the Licensees responsibility to understand these conditions and ensure they are observed.

4  Minister may partially revoke a licence where one, but not all, of the persons on the licence (i) becomes insolvent, (ii) ceases to direct and control activities under the licence from a fixed place in the UK, (iii) is acquired by a third party to whom the Secretary of State objects and action is not taken to address the Secretary’s concern;  Minister may require a licensee to plug and abandon a suspended well before the end of the licence term;  Amend the definition of a change of control so that there is deemed to be a change of control whenever a person takes control over a licensee who has had rights assigned to him (the existing definition defined a change of control as occurring whenever a person took control of a licensee who did not have such control when the license was originally granted);  Require licensees to provide contract details for the person to whom notices, directions and other documents issued pursuant to the licence are to be sent.

 Hydrocarbon Licensing Directive (1994) ▪ Framework for granting of licences in EU Member States ▪ Hydrocarbon Licensing Directives Regulations 1995 ▪ Reg. 3 – application criteria ▪ Technical and financial capability ▪ Proposed activities ▪ Tenders ▪ Previous experience; etc en 1.htm

 Any one who wants to explore for, drill for or extract oil or gas in the UK must hold a licence issued under the 1998 Petroleum Act by the Secretary of Energy and Climate Change  Application for such licences can only be made in response to a formal invitation from DECC – regular Licensing Rounds

 Where two or more applications have equal merit, the Secretary of State has the discretion to apply other relevant criteria, although the other relevant criteria cannot be applied in a discriminatory manner.  Apart from the consideration of the EU law when assessing competing applications, the Oil and Gas Industry Taskforce (now PILOT) in its report A Template for Change published in 1999 identified a need to improve the licence administration.

 A single company or group of companies ▪ application should contain list of companies & ▪ proposed equity interests which must be the same throughout any single application ▪ for a single type of Licence (Traditional, Promote or Frontier)  Must demonstrate ▪ technical, environmental competence to operate to the necessary standards and ▪ financial viability to carry out Work Programme

 There are two types of financial checks that DECC may apply at a Licensing Round:  Financial Viability Assessment  Financial Capacity Assessment

 The applicant is required to include its technical understanding of acreage and  its plans for exploitation including information to:  demonstrate the quality and understanding of its technical evaluation;  identify prospectivity;  explain the exploration (and/or exploitation) rationale;  propose a detailed Work Programme  (in all cases except Promote applications) operatorship competence  (for Promote Applicants only) present its plans and approach to secure the resources necessary to complete the Work Programme.

 Licences are offered if  (a) the activities are not likely to have a significant effect on the management of a Special Conservation Area or Special Protection Area;  (b) an appropriate assessment under Habitats Directive has ascertained that the activities will have no adverse effects on such SACs or SPAs;  (c) activities are assessed as likely to cause such adverse effects, subject to  There being imperative reasons of overriding public interest for awarding the licence;  The taking of appropriate compensatory measures;  There being no alternative solutions

 There are two broad types of licences that can be obtained for exploration and production of oil and gas in the UK.  Seaward (UKCS) Licences; and  The Landward (Onshore) Licences  Seaward Licences can be further divided into:  Exploration Licences; and  Production Licences

 Exploration  non exclusive licence to search for petroleum in the strata in the islands and in the sea bed and subsoil in any seaward area and in those parts of any landward area which are below the water line.  Production  exclusive rights to search or bore for or get petroleum in the sea bed and subsoil under the seaward area.

 Exploration, appraisal and production  5 types (1 onshore and 4 offshore):  “Traditional” Seaward Production licence  “Promote” seaward Production licence  “Six – Year Frontier” Seaward Production licence  “Nine-Year Frontier” Seaward Production licence  Landward Production licence(Petroleum Exploration and Development Licence- PEDL)

 Original type of Seaward Production Licence  Initial term: 4 years for exploration and gathering of geological information.  Second term: 4 years project appraisal and the preparation of licensed area for production  Third term: 18 years for final and last stage of the project (production stage) ▪ The mandatory relinquishment at the end of the initial term is of 50%

 Certain areas of the UKCS (e.g. the deep waters west of the Shetlands) are particularly technically challenging and lack proper infrastructure.  DECC offers adapted frontier licence to suit these conditions:  To allow companies screen large areas, potentially with greater materiality for wider range of prospects;  Greater time allowed for exploration, appraisal and development -Initial term- 6 years -Second term – 6years -Third term- 18 years

 2002 demand for a new licensing opportunity for companies not able to compete in Traditional Licensing Rounds (21 st Seaward Licensing Round- 2003)  Similar to Traditional Licence (same periods)  allows up to 2 years before meeting DECC’S financial, technical and environmental checks are deferred, not waived, and no drilling allowed until appropriate criteria met).  Allow attraction of technical, environmental & financial capacity to complete the agreed Work Programme.  Each promote licence carries “Drill-or- Drop“ Initial Term Work programme  Licence will expires after 2 years if the Licensee has not satisfied technical, environmental and financial capacity to complete the work programme (i.e. to drill a well)

 Harsh environment West of Scotland.  Similar to existing Frontier Licence but Initial Term (9 years)  Applicant must prove technical and environmental competence and financial capacity.  Initial Term last for nine years.  Second Term last for six years.  Third Term lasts for 18 years.  Mandatory relinquishment of 75% after 3 years with a mandatory relinquishment at the end on the initial Term of 50% of the remainder.