Updated: Exploration fears persist despite ‘encouraging’ UK licensing round

Drill crew removing bolts to collapse the slip joint on the Byford Dolphin semi-submersible drilling rig

The UK oil industry’s regulator said today that it was “encouraged” by the response to the latest North Sea frontier licensing round.

But the Oil and Gas Authority (OGA) remains concerned about low levels of drilling activity in the UK continental shelf (UKCS).

Mike Tholen, upstream policy director at industry body Oil and Gas UK (OGUK), said the 31st bidding round showed the appetite for exploration had grown, but agreed more urgency was needed.

The number of blocks applied for was 45% higher compared to the last time frontier acreage was made available, in 2016.

Thirty-five companies staked claims to 164 blocks in the 31st round, which closed on November 7.

In the 29th auction − two years ago – 24 companies handed in applications for 113 blocks.

It means bids were submitted for 9.28% of the 1,766 available blocks in the 31st round, compared to 8.96% of the 1,261 assets put up for grabs in 2016.

UK offshore licensing rounds have alternated between focusing on frontier or mature areas for a number of years, mirroring the Norwegian system.

The regulator will now decide which applications to accept before making an announcement on the awards in the second quarter of 2019.

The latest frontier round focused on large areas off the west coast of Scotland, the east Shetland platform, the mid-North Sea High sector and parts of the English Channel.

The aggregate area covers more than 140,000 sq miles, an expanse bigger than the UK’s land mass.

Large volumes of seismic data have been made available to help companies decide which blocks they want.

The UK Government invested a total of £40 million in separate seismic surveys in 2015 and 2016 to help generate the information.

Nick Richardson, head of exploration and new ventures at the OGA, said: “This is an encouraging set of applications, demonstrating that interest in UK offshore licensing opportunities has increased since the 29th frontier round held in 2016, with an almost 50% increase in the number of blocks applied for.

“The OGA has received applications on some blocks on the East Shetland Platform which have never been previously licenced, underlining the positive impact of on-going government-funded data initiatives.”

Mr Richardson added: “Whilst the UKCS offers a rich and attractive set of exploration and field development opportunities, the OGA continues to be concerned by low levels of drilling activity.

“We are encouraging industry to step up its efforts to explore for new resources, providing enhanced security of domestic supply in the future.”

Drilling activity has reached record low levels in the UK North Sea in recent years.

In its 2018 Economic Report, OGUK said 23 exploration and appraisal wells were drilled in 2017, a decline for more than 50% compared to levels recorded five years ago.

The industry body predicted 10-12 exploration wells and 7-10 appraisal wells would be drilled this year.

Mr Tholen said: “The pace of exploration activity needs to continue to build if we are to deliver long-term goals.

“Initiatives including the government-funded seismic surveys have served to illuminate the exciting frontier opportunities that continue to exist in the maturing North Sea.

“The outcome of this licensing round promises to boost exploration efforts and support the aims of Vision 2035, which is to add another generation of productive life to the basin.”

Attention will now turn to the 31st supplementary round in the Greater Buchan Area of the outer Moray Firth, scheduled to be launched in the first quarter of 2019.

Ross Cassidy, senior research analyst, North Sea upstream at Wood Mackenzie, said the latest round should be applauded and that the OGA was doing a good job of promoting UKCS opportunities.

He said: “The corporate landscape is evolving, which should bring new ideas and get licensees and assets in the right hands, but we can’t escape the fact 2018 is a historical low in terms of exploration drilling, reaching back to the 1960s.

“Discoveries in Guyana have stolen the exploration show in 2018, but with 10 million to 20 million barrels of oil equivalent still to play for in the UK, our upstream sector is still alive and kicking.”

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