The North Sea Transition Authority ("NSTA") has announced that Britain's first oil and gas exploration licensing round since 2019 attracted 115 bids from 76 companies.
The 33rd North Sea Oil & Gas Licensing Round, which launched in October, saw 898 blocks and part-blocks offered with the UK Government targeting the award of 100 petroleum licenses to stimulate exploration activity in the basin. UK production from the North Sea has dipped to 1.5 million BOE/D, from a peak of around 4.4 million in 1999, and today's acreage offering represents the latest in a series of steps taken by the UK to promote its energy security in the face of prolonged underinvestment and the current geopolitical pressures affecting world energy markets. Stimulating domestic production may also ease the UK's balance of payments at a time when Sterling is under sustained pressure.
The North Sea Transition Authority is aiming to reduce the average time from discovery to first production on the UK Continental Shelf ("UKCS") which stands currently at five years. To this end the 33rd Licensing Round identified four high priority cluster areas in the Southern North Sea - historically a prolific natural gas producing area - and which benefits from technically mature prospects, in proximity to existing infrastructure connecting to the proposed Bacton hydrogen hub, identified as a key element in the UK's Net Zero strategy. Acreage was also offered in the West of Shetland, Central and Northern North Sea areas, as well as the East Irish Sea.
The harsh operating environment in the North Sea makes it a high-cost basin. The UKCS also faces the challenge of ageing offshore infrastructure, while the geological features of the remaining untapped reservoirs tend to render them economically marginal. In consequence, oil majors have in recent years announced their intention to focus their capital elsewhere and exit the UKCS. These majors are being replaced by a new generation of private equity backed and smaller publicly listed operators, whose appetite for returns and lean operating models have in many cases sustained assets long beyond their expected operational life and brought new reserves to the market that would otherwise have been ignored by the majors. Nevertheless, the changing profile of investors in the North Sea means the basin must compete harder than ever for international capital. It is hoped the market leading GHG emission reduction commitments, agreed by UK operators in the 2021 North Sea Transition Deal, will encourage investment in the UKCS at a time when capital is increasingly conscious of emissions intensity.
The North Sea has a long history of delivering energy security, jobs, and substantial revenues for the UK economy. Following the end of the application round which closed in January, Nick Richardson, NSTA head of exploration and new ventures, said, "We have seen a strong response from industry to the Round, which has exceeded application levels compared to previous rounds."
Results of the process are expected in late spring and the NSTA have said hope to begin awarding the licenses from Q2 this year.
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