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27 November 2007 / Enquiries: 020 7215 5000
URL: http://www.dti.gov.uk/
Telex: 8813148 DIHQ G
Minicom: 207 215 6740
Dear <Name>,
ist round licences; production-linked extensions in 2010
I’m writing to seek your input into the development of a way to deal with the forthcoming expiry dates of the 1st-Round Licences. All of them are set to expire in 2010, but they all cover at least one currently-producing field; so they will have to be extended if production is not to be terminated early.
I attach at Appendix 1 a list of the surviving 1st Round licences, and of the fields that they cover. As you will see, there are a great many fields, so this will be a major project and it is not too early to start.
We have given some thought to this subject, identified what we think are the major factors to be addressed and devised what we believe is a sensible approach. I attach a summary at Appendix 2, and would be grateful if you would consider it and let me know by 31 January:
1) your view of the general approach; and
2) any other issues that you think we have neglected.
At this stage I’m looking to define a basic approach. It would be nice to believe that it will be able to cope with every case, but realistically there’s a possibility that we will be asked to consider exceptional circumstances in some cases. Therefore it would be useful if you would also give me an indication of any such cases that you expect to put to BERR later on.
I look forward to hearing from you.
Yours sincerely,
Mike Hawkins
Head of Oil & Gas Licence Administration
e-mail:
cc: All companies on extant 1st round licences; OGUK; OGIA
Appendix 1 – Extant 1st Round licences with their fields
Licence / Field NameP001 / Cleeton
Helvellyn
Hoton
Hyde
Neptune
Newsham
Ravenspurn
Ravenspurn N
Ravenspurn S
Rose
West Sole
Licence / Field Name
P005 / Amethyst East
Amethyst West
Licence / Field Name
P007 / Gawain
Indefatigable
Inde [Shell]
Leman [Shell]
North Sean
South Sean
Vulcan
Licence / Field Name
P008 / Barque
Barque South
Clipper North
Clipper South
Galleon
North Valiant
Licence / Field Name
P011 / Joanne
Julia
Licence / Field Name
P012 / Acorn
Curlew
Egret
Glenelg
Heron
Merganser
Scoter
Starling
Licence / Field Name
P013 / Gannet A
Gannet B
Gannet C
Gannet D
Gannet E
Gannet F
Gannet G
Guillemot A
Guillemot North West
Guillemot West
Teal
Teal South
Licence / Field Name
P016 / Apollo
Artemis
Baird
Beaufort
Bell
Bell [Perenco]
Bessemer
Brigantine B
Bure
Callisto
Corvette
Indefatigable
Inde[Perenco]
Inde South West
Leman [Perenco]
Minerva
Victor
Viking B
Whittle
Wollaston
Licence / Field Name
P019 / Arbroath
Montrose
Licence / Field Name
P020 / Arbroath
Montrose
Licence / Field Name
P021 / Clapham
Guillemot North
Guillemot North West
Guillemot West
Teal South
Licence / Field Name
P024 / Newsham
West Sole
Licence / Field Name
P025 / Arthur
Bell [Conoco]
Callisto
Camelot Central South
Camelot North
Camelot North East
Europa
Excalibur
Ganymede
Lancelot
Leman [Perenco]
Mordred
Sinope
Victor
Licence / Field Name
P028 / Alison[Venture]
Ann
Apollo
Audrey
Delilah
Della
Hewett
Hyde
Minerva
Neptune
Saturn (Annabel)
Saturn (Atlas,Hyperion,Rhea)
Viking A
Licence / Field Name
P030 / Amethyst West
Mercury
Licence / Field Name
P032 / James
Janice
Joanne
Judy
Licence / Field Name
P033 / Alison-Kx[Conoco]
Ganymede
South Valiant
Valkyrie
Vampire
Vanguard
Victor
Viking A
Viking C
Viking E
Viscount
Wenlock
Licence / Field Name
P037 / Beaufort
Bure
Dawn
Deben
Hewett
Leman [Perenco]
Pickerill
Thames
Thurne
Wensum
Yare
Licence / Field Name
P039 / North Valiant
South Valiant
Vulcan
Welland North West
Welland South
Licence / Field Name
P050 / Amethyst West
Appendix 2: Licence extensions: issues to be addressed
Secretary of State’s power to extend licences
1) The Hydrocarbons Licensing Directive Regulations 1995 (No 1434) says:
6(2) The Secretary of State may extend the term of a licence if—
(a)the terms and conditions of the licence permit an extension of the term;
(b)the licensee has performed its obligations in accordance with the terms and conditions of the licence; and
(c)the term of the licence has proved, or is likely to prove, insufficient for the licensee to complete the activities authorised by the licence.
2) The 1st Round model clauses contained no provision for extension, so because of 6(2)(a) any 1st Round licences that are to be extended will first have to be amended to add such a provision.
3) Given that we must make at least one amendment to each licence, it would be highly desirable to ensure that any other amendments necessary are made by that same instrument. The alternative, in which it’s just the first in a series of amendments of each licence, could easily become unmanageable.
Statement of BERR policy
4) BERR is prepared to extend each licence that has a producing field, so as to allow the field(s) to carry on producing for as long as possible. However, BERR will restrict those extensions as tightly as possible, so that no acreage will remain under a 1st Round licence any longer than is justified by the need to cover production.
5) This policy accords with the Regulations cited above.
Terms of extension
6) An extension will cover just the producing acreage that justifies it. Therefore each one will be conditional on the prior amendment of each licence so that:
a) It contains a geographical definition of each field area covered by the licence;
b) All the acreage outside those field areas is surrendered;
c) Each field area will be deemed to be surrendered automatically as production ceases; and
d) The licence itself will terminate automatically when the last field area has been relinquished.
Acreage that will get an extension
7) We will extend these licences in respect of producing acreage only. We propose to define producing acreage as that occupied by a field that is producing at the expiry date, or which is covered by an FDP that has been approved within the previous 12 months even if production has not yet started.
8) More precisely, for the definition of these field areas, we propose to use the field determination area at the time. Where the field determination area is very irregular, we will “round it up” (i.e. allow extra small portions of acreage) until it complies with the model clauses’ usual relinquishment rules.
How long will the extension last for?
9) We require a plan that allows an extension that is only as long as is justified by continuing production, without creating a recurring regulatory burden. Therefore we do not propose to give fixed-term extensions; and propose instead to define the duration of each extension with reference to the cessation of production on each particular field. We have not produced a detailed formula but as an example, one possible formula would be that each field area is deemed to be surrendered after two successive years with zero production.
10) We recognise, however, that the tax treatment of decommissioning may raise isues in some cases. BERR will discuss this issue with Treasury and HMRC between now and 2010, but for the purposes of this initial discussion it would be prudent not to assume that the tax rules will change.
Effect of licence assignments
11) Because of the need to amend each licence, the process will require agreement by all the parties to each licence. If any company joins a licence partway through the process, they will invalidate whatever agreement has already been achieved; and any documents that have not yet been fully executed will have to be torn up. With so many complicated licences to deal with, there is a danger that the process will become unmanageable if assignments carry on in parallel with the extension process. It may therefore be necessary to agree a period during which assignments are suspended, so that the licence can be extended.
Splitting licences
12) We considered splitting the licences as part of the process, so that each field would be covered by a separate licence. That method has many attractions, but in practice the number of fields rules it out; the creation of a hundred new licences is not a realistic proposition.
Other licences
13) BERR is not bound in perpetuity to follow the approach developed here, but we are not thinking of the 1st Round as a special case so there is an assumption that the policy defined here will apply equally to 2nd-Round and other licences.
Conclusion
14) We propose a single Deed of Variation for each licence. It will:
a) Enable extension of the licence to allow production to continue from one or more fields;
b) Define one field area for each field on the licence, based on the field determination area;
c) Surrender all acreage outside those field areas with effect from the 2010 licence anniversary;
d) Ensure that each field area will be automatically surrendered at the end of production (or shortly afterwards); and
e) Terminate the licence once all field areas have been surrendered.