Record North Sea licences issued but industry still needs support, say experts

Oil_RigThe level of interest in exploiting the North Sea’s remaining oil and gas reserves was described as a “very positive message” yesterday after the Oil and Gas Authority confirmed one of its biggest rounds of licencing awards in the industry’s history.

However, applications for the new licences were lodged when the latest round officially opened at the start of last year – well before the price of oil started falling, and as oil prices fell to a four-month low, analysts said the regulator would have to work to ensure the licences were exploited.

The OGA awarded 41 licences to drill for oil and gas in the North Sea under the 28th licensing round, bringing the total to 175 after an initial wave of licences were approved in November last year.

Oil majors Shell and ENI were among the successful bidders in the latest round of awards, while smaller firms such as Arden Oil, which won initial blocks in the Central and Southern in November, were also included in the OGA’s latest round.

The news comes in the wake of a UK Government package of support aimed at encouraging £4 billion of additional investment, and Martin Findlay, head of tax at KPMG warned that the the true test of the OGA was not simply the awarding of licences.

He said: “We will need to see how effective the new OGA is, not just the licensing but crucially in the environment we’re in how they can help companies exploit, explore and produce.”

Andy Samuel
Andy Samuel

Andy Samuel, the chief executive of the Oil and Gas Authority, said: “The UK Continental Shelf remains a world-class hydrocarbon province where significant resources and economic value remain to be realised.”

He added: “The UK Continental Shelf remains a world class hydrocarbon province where significant resources and economic value remain to be realised. The good level of interest in the 28th Round highlights t he continued attractiveness of the UK’s oil and gas resources.

“Licences are just a start, and industry, government and the OGA now need to work together to revitalise exploration activity across the basin and convert licences into successful exploration wells.”

UK energy minister Andrea Leadsom said: “We are backing our oil and gas industry which supports hundreds of thousands of jobs across the UK.

“The 28th offshore licensing round comes after the government announced a major package of support in March to encourage £4billion of additional investment in the North Sea which will prolong the life of this vital industry.”

Mr Findlay said the popularity of the 28th round delivered a “very positive message that there’s life left in the UK continental shelf”.

He added that the OGA needed to ensure the industry has a streamlined costbase while the government ensured an attractive fiscal regime for the sector in order for the fields to be drilled.

“That’s really difficult to do at $50 oil but it’s an essential part. Initially what will be interesting will how the Oil and Gas Authority act going forward to ensure that those licences can be actively explored and delivered and just sat on effectively because that’s key to our recovery.”

“The take home message is there is still significant amount of potential for the North Sea to react and to make significant gains but challenges have never been greater.

“This is where the UK supply chain on the costs side and fiscal side needs to be alert and not risk oil companies moving their capital elsewhere.”

Brent crude oil fell 95 cents to $53.67 a barrel yesterday, similar to its lows hit in March.

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