SLR's Tony Smith on 14th Oil & Gas licensing round

Developments and status for the 14th Onshore Oil and Gas DECC Licensing Round and issues arising from the Infrastructure Bill

Bids for the long awaited 14th UK onshore Oil and Gas Licensing Round closed on October 28th.  According to the Department for Energy and Climate Change (DECC), 95 applications were received for 295 blocks (each block is 10km x 10km).   Many of the applications were focussed on shale gas opportunities but the licence round also included conventional oil and gas.   DECC have said that they will be ready for notification to successful bidders by the end of January but it will be Government who ultimately decides.

Successful applicants will have a 5 year initial exploration period to complete their bid obligations, which may include seismic acquisition and exploratory drilling. The expectation is that with a few exceptions, the Global oil majors will not bid for this licencing round instead waiting to see if the smaller niche exploration companies can be successful.   Total, GDF SUEZ, INEOS, Egdon Resources, Hutton Energy and Centrica are amongst companies that have completed ‘Farm-In’ commercial deals for 13th Round licenses in the last year or so, allowing them to take equity in the Petroleum Exploration and Development Licence (PEDL) in exchange for a commercial settlement.  Some of these organisations are expected to expand their involvement by bidding in the 14th Licensing Round in an operator role alongside current 13th Round licence owners.

Having successfully acquired a PEDL, licence holders are challenged with locating a wellpad site that not only sits above shale ‘sweet spots’ but also meets environmental, logistical and social acceptability.  Environmental designations are well understood and include AONB, SSSI, SPA, flood zone designations, proximity to shall aquifers.  There is a requirement to define and record baseline data on soil Assessment to include key data on water, air and ecology.   Shale Gas projects to include hydraulic fracturing will require an Environmental Risk Assessment (ERA) and an Environmental Impact Assessment (EIA) reflecting the wider range of environmental impacts.  In fact the UK has one of the most stringent regulatory regimes in the world; according to the United Kingdom Onshore Oil and Gas Group (UKOOG), the industry is regulated by a number of statutory bodies including the Environment Agency (EA) in England, Scottish Environment Protection Agency (SEPA) in Scotland and Natural Resources Wales (NRW) in Wales, Health and Safety Executive (HSE) and the Department of Energy and Climate Change (DECC).   Further regulatory authorities include the local Mineral Planning Authority and where appropriate, the Coal Authority.  Onshore oil and gas regulation in the UK has been recognised as an exemplar by the rest of the world. In addition the industry is governed by 14 separate pieces of European legislation.

The so-called Social Licence to Operate (SLTO) is perhaps the most difficult and contentious obstacle to wellpad development.   Operators must consult and engage with communities to ensure full understanding of the site development and its impact on the wider community.   UKOOG published its Community Engagement Charter in 2013 covering a payment of £100K per wellsite to a Local Community Fund with a further 1% of production related revenue from the commercial stage of development.  More recently Ineos stated a more generous 6% production related payment covering landowners and community funds.   In addition to this, Government has announced that 100% of the business rates for a wellpad will be retained locally.

Meanwhile the Infrastructure Bill, containing several important references to the shale gas industry has now been committed to a Public Bill Committee.  The Labour Party introduced proposed amendments to the Infrastructure Bill which are currently being debated in the House.

So, the results from the 14th licensing round, coupled with conclusion of approvals for 13th round wells in Lancashire and elsewhere and adoption of the Infrastructure Bill into law will set the scene for planning applications and drilling programmes to determine the political, technical and economic basis of the UK shale issue.

For more information please contact: John Leeson

Tony Smith
Tony Smith