25th Offshore Oil and Gas Licensing Round

A record breaking 2,297 blocks or part blocks in UK waters are on offer for exploration in the 25th Offshore Oil and Gas Licensing Round announced on 20th February 2008 by Secretary of State for Energy John Hutton.

The 25th round includes areas of the Continental Shelf not previously explored, and 72 blocks that were classified as “fallow” in 2007 have either been fully, or partly, relinquished, and are on offer in this round.

Applications for Traditional and Frontier Seaward Licences will be accepted on Wednesday 21st May 2008 and Promote Licence applications will be accepted on Thursday 22nd May 2008.

Changes to Model Clauses

The Department for Business Enterprise and Regulatory Reform (“BERR”) has introduced a new set of model clauses for the 25th Round.

Term

The only change to licence structure is that (in recognition of the greater difficulties presented by the new Frontier areas west of the Hebrides), BERR has allowed an extra year before the Frontier Licence’s 75% mandatory surrender. The Frontier Licence’s six-year exploration phase therefore has a 3+3 form instead of 2+4.

Energy Bill related

Interestingly, the Model Clauses mirror certain amendments proposed by the Energy Bill 2008. These changes (that only relate to licences not yet awarded):

a. provide that the 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 of State’s concerns;

b. provide that the Minister may require a licensee to plug and abandon a suspended well before the end of the licence term;

c. 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 licence was originally granted); and

d. 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.

It is the above right of “partial revocation”, which will give rise to concerns surrounding how this right will be exercised in practice and in particular how to adequately cater for the exercise of such right in the relevant contractual arrangements between licensees (i.e. the need to arrange for reallocation of any percentage interest in the joint venture among non-defaulting licensees in the joint operating agreement).

In addition, the low-numbered Model clauses are to be rearranged and simplified and a single set of Model Clauses in the 2008 Regulations will be used for every seaward production licence in the 25th Round, whether ‘Traditional’, ‘Frontier’ or ‘Promote’, and whether or not the Work Programme includes a Drill-or-Drop deadline.

Financial capability

All companies who are part of an application must now, according to the DBERR website, provide their most recent accounts. This is the first time that Promote applicants have been required to provide financial information.

For further information on the 25th Licensing Round please click here.