As the 14th round announcement looms, Tony Smith, Technical Director at SLR, looks at the challenges facing successful bidders in meeting onshore oil and gas regulatory requirements.
Bids for the long awaited 14th UK onshore Oil and Gas Licensing Round closed in October 2014. According to the Department for Energy and Climate Change (DECC), 95 applications were received for 295 blocks (each block is 10km x 10km). While the licence round includes conventional oil and gas the main focus of the industry, and the wider public, is on the unconventional, shale gas and coal bed methane based, licenses.
Successful 14th Round applicants will have a 5 year initial exploration period to complete their bid obligations, which may include seismic surveys and exploratory drilling. The expectation is that, with a few exceptions, the global oil majors will not bid for this licencing round instead waiting to see if the smaller niche exploration companies can be successful. Total, GDF SUEZ, INEOS, Egdon Resources, Hutton Energy and Centrica are amongst companies that have completed ‘Farm-In’ commercial deals for 13th Round licenses in the last year or so, allowing them to take equity in the Petroleum Exploration and Development Licence (PEDL) in exchange for a commercial settlement. Some of these organisations are expected to expand their involvement by bidding in the 14th Licensing Round in an operator role alongside current 13th Round licence owners.
Since the 13th round in 2008 – when 60 applications were received for 182 blocks – the profile of unconventional gas in the UK has risen dramatically. The government has been strongly supportive of unconventional developments in the country since it lifted a memorandum against fracking in 2012. However, the industry has also faced increased pressure from anti-fracking lobby groups. This heightened attention means successful bidders in the 14th round face a much more challenging environment than in the past. This is no truer than when it comes to meeting planning and regulatory requirements.
The UK has one of the most stringent regulatory regimes in the world and is regulated by a number of statutory bodies including the Environment Agency (EA) in England, Scottish Environment Protection Agency (SEPA) in Scotland, Natural Resources Wales (NRW) in Wales, the Health and Safety Executive (HSE) and the DECC. Further regulatory authorities include the local Mineral Planning Authority and where appropriate, the Coal Authority. Onshore oil and gas regulation in the UK has been recognised as an exemplar by the rest of the world. According to the UK Onshore Oil and Gas Group (UKOOG), the industry is governed by 14 separate pieces of European legislation.
Having successfully acquired a PEDL, licence holders are challenged with locating a wellpad site that not only sits above shale ‘sweet spots’ but also meets environmental, logistical and social acceptability. Environmental designations are well understood and include AONB, SSSI, SPA, flood zone designations and proximity to aquifers. Shale gas development includes the need to hydraulically fracture (‘frack’) the gas bearing rock and an Environmental Risk Assessment (ERA) and Environmental Impact Assessment (EIA) are expected to be undertaken. There is an emerging consensus requiring definition and recording of site baseline data for soil, water, air and ecology. Such assessments may then be used as a benchmark for operational and ultimately decommissioning phases.
The so called Social Licence to Operate (SLTO) is perhaps the most difficult and contentious obstacle to wellpad development. Operators must consult and engage with communities to ensure full understanding of the site development and its impact on the wider community. UKOOG published its Community Engagement Charter in 2013 covering a payment of £100K per wellsite to a Local Community Fund with a further 1% of production related revenue from the commercial stage of development. In addition to this, Government has announced that 100% of the business rates for a wellpad will be retained locally to ensure local communities feel the benefit of fracking in their area.
Further regulatory changes are proposed in the Infrastructure Bill, which has received cross party support subject to some amendments. The Bill contains several important references to the shale gas industry and has now been committed to a Public Bill Committee. The Committee is expected to report to the House by Thursday 15 January 2015.
DECC has said it will be ready for notification to successful bidders by the end of January 2015, but it will be Government who ultimately decides the timing of the announcement. With the political, technical and economic environment surrounding shale gas continually evolving, the 14th round looks set to be the most interesting yet!
Tony has been technical advisor to Peel Gas & Oil since May 2013, advising on business strategy in the emerging unconventional gas and oil market. Tony has 35 years in the oil and gas industry spent mainly on gas projects with ExxonMobil but also with BP and Schlumberger. He has worked around the world on many gas projects encompassing project development, economics, strategy planning and advisory assignments. He has a PhD in oil biotechnology and for the last two years with SLR has focused on shale gas in the emerging UK market and in the Karoo shale basin in South Africa