UK North Sea regulator pauses licensing rounds as exploration drilling falters

London — UK North Sea regulator the Oil & Gas Authority announced a pause in further exploration rounds Sept. 3 to enable a more "coherent" set of awards in future, as latest drilling figures showed exploration activity falling back in 2020 after a recovery last year.

The OGA confirmed the decision to skip the annual licensing round process for 2020-21 for an indeterminate period as it announced awards in the latest licensing round, mainly allocating acreage close to companies' existing production facilities so they can try to top up reserves.

The pause comes as the government's Department for Business, Energy and Industrial Strategy said it was carrying out a review of the licensing process to align it with the country's goal of getting to net zero carbon emissions by 2050, although it stressed it saw a continued need for indigenous oil and gas production.

UK oil output fell by 4% on the year in the first half of 2020 to 1.10 million b/d as a production revival stalled on the back of the pandemic threat to offshore workers and collapsing prices. Spending cuts and delays to activity are expected to curb production volumes in the months to come.

The latest licensing round encompassed 65 different companies, offering them stakes in 113 licenses in mature production areas close to existing infrastructure, reflecting a general trend toward less costly exploration.

The awards lacked any firm obligations to drill new wells, requiring study of the areas and in some cases featuring a "drill or drop" option.

The OGA said it wanted to allow operators time to fulfil earlier obligations and the pause "will allow relinquishments to take place so more coherent areas may be re-offered in future, giving industry time to deliver on work commitments in the existing portfolio of licenses."

"Industry is encouraged to use the pause to acquire data and carry out studies in preparation for the next round," it said, adding it would consult companies on the resumption of licensing rounds.

UK exploration activity revived last year after generally slumping throughout the last decade, with 16 exploration wells drilled in 2019, according to the OGA.

Price-crash impact

However, this year so far, just six exploration wells have been drilled, of which three were "side track" offshoots of existing wells, the OGA told S&P Global Platts.

This year's wells have not been in vain, with Total announcing an "encouraging" gas and condensate discovery known as Isabella in March, and some reports suggesting the US' Apache may have made a discovery with its Solar exploration well, although Apache has yet to confirm this.

Questions have been raised about the former practice of awarding licenses with firm drilling obligations, viewed by some as being inflexible and forcing companies to spend money needlessly even when their geological understanding had changed.

This year's oil price crash meant much exploration was expected to focus on 'near-field' opportunities rather than more adventurous 'wild cat' drilling.

BP has said it will continue to explore in locations around the world where it already has operations, while Shell CEO Ben van Beurden said recently he saw continued "running room" generally in the UK West of Shetland area.

The OGA reiterated it saw continued scope for activity in UK waters, saying: "Government forecasts point to oil and gas remaining an important part of our energy mix for the foreseeable future, as we move towards net zero [carbon emissions], as the UK is still expected to be a net importer."

Regulatory review

Separately, BEIS said it was launching a review into the licensing regime "as part of the wider aim of achieving net zero emissions by 2050".

"The review will ensure the government has the information needed to plan for future oil and gas production in the UK in a way that is aligned with tackling climate change," with the initial findings to be transferred into draft legislation, BEIS said.

"The oil and gas sector will continue to be needed for the foreseeable future as we move toward net zero carbon emissions by 2050," business and energy secretary Alok Sharma said.

BEIS said oil and gas would be needed not only for heating, cooking and transport, but for manufacturing "everyday essentials like medicines, plastics, cosmetics and household appliances".

Industry group Oil & Gas UK said it "embraced" the review as an opportunity to "shine a light on how the sector is changing to support the country's climate ambitions while still ensuring it contributes to the UK's ongoing security of energy supply."

"The UK offshore oil and gas industry has the essential expertise to help the UK meet its climate ambitions by 2050 while at the same time providing affordable energy for households and families, supporting jobs, and creating exciting energy jobs of the future," OGUK CEO Deirdre Michie said.