What is an oil and gas production licence?
An offshore oil and gas production licence is an agreement between an oil and gas company and the government. Despite the name, a production licence does not give the automatic right to produce oil and gas, that requires further approvals.
A production licence gives a company certain rights over a defined area of the UK Continental Shelf.
You can think of a production licence as similar to a lease, with the company as a tenant and the government as the landlord. The tenant company is allowed to do certain things with that block by virtue of holding the licence for it (e.g., exploration in the field), but for other actions it needs the government’s consent (e.g., developing a new oil and gas project).
Production licences have three potential terms: the first for exploration; the second for planning and applying for government approval to produce oil and gas; and the third for production.
What is a licensing round?
Licensing rounds award ‘blocks’ in the North Sea to oil and gas companies. Licensing rounds are run by the North Sea Transition Authority, the government oil and gas regulator (formerly known as the Oil & Gas Authority).
The last round was the 33rd licensing round. There were 115 applications from 76 companies. The first batch of licences from this round were announced by the NSTA on 30 October 2023. We’ll come back to this later.
What’s the difference between licensing rounds and field approvals?
Obtaining a licence and obtaining consent to extract oil and gas are two separate regulatory processes. The Rosebank oil field was licensed in the early 2000s but only received approval to be developed in September 2023. The two processes go something like this:
Step 1: licensing
A company gets a licence (like a lease) for block(s) of the North Sea. They can explore for oil and gas, and develop a proposal for extracting in that area. Exploring means undertaking activities such as seismic surveys and drilling to test what resources are available, and is different to producing which means constructing facilities and extracting oil and gas from the ground.
Importantly, getting a production licence does not involve approving any new oil and gas projects. Obtaining a licence is just the first step. If a company holds a licence for a field, it can apply for approval to develop and produce oil and gas in the licensed area. Only after getting the required approvals can they develop a field.
Step 2: field approval
A company applies for consent to start developing an oil and gas field in an area it holds a licence for. The NSTA is responsible for issuing development and production consent. Before getting this approval, the project must undergo an Environmental Impact Assessment (including a public consultation) conducted by the Offshore Petroleum Regulator for Environment and Decommissioning (OPRED), and various assessments by the NSTA. The Secretary of State for Energy Security and Net Zero, currently Claire Coutinho, must agree to the NSTA granting consent.
What about the licenses approved this week?
On Monday, the North Sea Transition Authority announced the offer of 27 new oil and gas licences under the 33rd oil and gas licensing round. There are more to come from this licensing round, with the rest expected imminently. The NSTA are claiming that these new licenses are supporting UK energy security, but this could not be further from the truth. Most of the licenses in this round won’t amount to new fields.
Hundreds of North Sea licences have been offered through six licencing rounds since the Conservatives came to power in 2010. However, analysis by Uplift shows that this has led to the discovery of only 9 weeks worth of gas, from 12 fields - and only half of these have actually begun producing. To date, after 13 years under Conservative governments, these hundreds of new licences have so far provided the UK with a grand total of just 16 days worth of gas (or just over two weeks’ worth of gas).
After decades of drilling, North Sea reserves are dwindling, and are mostly oil (for export) anyway. New North Sea licences won’t make a difference to our energy security, nor to the lives of millions who can’t afford to heat their homes this winter. Drilling for more oil and gas is not the answer for energy security, instead the focus should be on expanding infrastructure for renewables.
While the licenses won’t improve our energy security or energy bills crisis, they will have several negative impacts:
1 In Deep Water: Exposing the hidden impacts of oil and gas on the UK’s seas