A record number of companies applied for petroleum licences during the latest and 24th Licensing Round. As a result, it is envisaged that the much-awaited announcement of the successful applicants will kick-start the next phase of the development of the already mature UK Continental Shelf (UKCS) sector.

The entrants should fit comfortably in the UKCS sector, with the support of government and industry bodies, an established network of offshore infrastructure and the expertise of existing companies that have contributed to the success of the North Sea industry.

However, with their new role as active participants, comes an added responsibility within a well-developed regulatory framework, with government and industry deadlines, contractual obligations and what some might see as a burdensome taxation regime. The licensing criteria expects those involved to have the necessary financial and technical capacity and the environmental capability to exploit the licensed area fully and responsibly. 

The challenges include:

  • The financing of petroleum exploration activities, which are generally regarded by banks as too risky;
  • The adherence to licence controls, work programmes and DTI approvals, which were put in place to ensure completion in a timely fashion;
  • Compliance with statutory controls regulating offshore employment, work practices, health, safety and the environment (including planning requirements and decommissioning of offshore installations);
  • The negotiation of effective contractual arrangements with joint licensees framed under joint operating agreements that will govern the relationship between those involved in the conduct of their operations.

It is generally recognised that with the declining industry, there is increasing reliance on imports, smaller discoveries, scarcity of rigs and seismic vessels and the existing infrastructure is facing unavoidable decommissioning obligations.

The North Sea still offers vast opportunities for new entrants - with up to 15-20 billion barrels still remaining – and especially for those companies that have a sound understanding of the challenges presented by North Sea operational conditions.

Leon Moller is a lawyer specialising in oil and gas law with UK law firm Shepherd and Wedderburn LLP.  01224 343 557

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