3.1 A strong regulatory regime is considered essential to ensure that the nation as a whole benefits from the UKs oil and gas resources, to safeguard the environment and to ensure that optimum use is made of reserves. The regulatory regime also offers the companies involved a stable environment in which to operate and minimises disputes about drilling or development rights.
3.2 The UK regulatory regime is enforced primarily through the licensing system administered by the Department of Trade and Industry (DTI). This chapter aims to explain that system and the legislation from which it is derived. It also summarises offshore health and safety arrangements and environmental safeguards.
3.3 The Petroleum (Production) Act 1934 vests ownership of oil and gas within Great Britain and its territorial sea in the Crown, and gives the Government rights to grant licences to explore and exploit these resources. The United Kingdoms rights to oil and gas beyond the territorial sea derive in part from the United Nations Convention on the Continental Shelf of 1958. The Continental Shelf Act 1964 gives effect to these rights and extends the licensing powers of the Petroleum (Production) Act 1934 to the UK Continental Shelf (UKCS).
3.4 Regulations made under these Acts prescribe how and by whom applications can be made and specify the model clauses to be incorporated in licences. There are separate Regulations for the Landward and Seaward Licensing regimes. The Landward regime covers all of the onshore area of Great Britain and certain estuarine and nearshore waters ("watery areas") within defined "bay closing lines". The Seaward regime applies to the remainder of the UKCS.
Types of Seaward Licences
3.5 For licensing purposes the UKCS is divided into quadrants, each measuring 1°of longitude by 1° of latitude (except where the coastline or a neighbouring countrys continental shelf intervene). Each of these quadrants is given a unique number and a full quadrant is subdivided into 30 blocks. The further south the block, the bigger it will be, but the average size of a complete block is about 250 square kilometres (roughly 100 square miles). Following surrenders and further subdivision, the number of "blocks" (in effect, part blocks) has increased in the more heavily licensed areas. There are two types of licence:
3.6 Seaward exploration licences allow survey work and shallow drilling (not to exceed 350 metres in depth without the approval of the Secretary of State for Trade and Industry) in any part of the UKCS which is not held under a production licence. They may be applied for at any time and are valid for three years, renewable at the Secretary of State for Trade and Industrys discretion for one further term of three years.
3.7 Seaward production licences grant the holder exclusive rights to explore for and produce petroleum in one or more particular blocks. They can usually be applied for only in response to invitations issued by the Secretary of State for Trade and Industry and in respect of blocks or areas specified in the invitation. Each invitation is known as a "Round of Licensing"; these have not been held according to any pre-determined or statutory pattern. The duration of licences has varied with successive Rounds. In addition, blocks may, under certain circumstances set out in Regulations, be offered for licensing between rounds ("out-of-round").
3.8 A review of the licensing process was conducted during the second half of 1996. This identified a number of potential changes to round administration systems and to the scope of licences, some of which will require amendments to the Regulations which underpin the licensing system. It is hoped that the necessary revised Regulations and administrative procedures will be introduced in the 19th Seaward Round.
Types of Landward Licences
3.9 The Petroleum (Production) (Landward Areas) Regulations 1995 introduced a single landward licence to replace a previous three licence system. The new licence, called a Petroleum Exploration and Development Licence (PEDL) is broadly similar to a Seaward Production Licence. The first awards of PEDLs were made in the 7th Landward Licensing Round, which was completed in March 1996.
3.10 Other currently valid landward licences granted under previous systems include Mining Licences (MLs - issued before or during 1967); Production Licences (PLs -issued between 1967 and 1984); and the Exploration (EL), Appraisal (AL) and Development (DL) Licences introduced in 1984. The short term Supplementary Seismic Survey Licence (SSSL), introduced in 1991, allows the holder of one of the above licences to extend a seismic survey a short distance beyond that licences limits in order to obtain data over the full licence area. Methane Drainage Licences (MDLs) are issued to coal mine operators only and permit them to get natural gas in the course of operations to make and keep mines safe.
3.11 Again, Landward production licences grant the holder exclusive rights to explore for and produce petroleum in one or more particular blocks and can usually be applied for only in response to invitations issued by the Secretary of State for Trade and Industry, but blocks may, under certain circumstances set out in Regulations, be offered for licensing between rounds ("out-of-round"). The rights granted by Landward licences do not include any rights of entry onto land: Licensees must obtain the prior permission of the owners and occupiers of any land which they may wish to enter in connection with their operations. Licensees must also obtain any consent which may be necessary under current legislation, including planning permission. Licensees wishing to enter or drill through coal seams in recognised coalfield areas must seek the permission of the Coal Authority.
Criteria for Awarding Licences
3.12 Licences are awarded at the Secretary of State for Trade and Industrys discretion. All applicants are judged against the background that they meet fully the general objective of encouraging expeditious, thorough and efficient exploration to identify the oil and gas resources of the United Kingdom. The criteria used to make this judgement are set out in Regulations. Applicants must meet threshold standards on financial capability and environmental management and demonstrate technical competence through their geological interpretation of the area applied for and their plans for further exploration and appraisal of its potential resources.
3.13 On three occasions, applications for Seaward Production Licences (SPLs) were invited for a minority of blocks in a larger round by competitive cash tender ("auction rounds"). 15 blocks were offered on this basis in each of the 4th (1971/72), 8th (1982/83) and 9th (1984/5) Rounds, and 15, 7 and 13 blocks respectively were awarded. Blocks were not automatically awarded to the highest bidders, who had also to meet the required financial, environmental and technical criteria.
Applications For Licences
3.14 Guidance notes which explain how to complete the application form and what supporting information is required to help the DTI to assess their bid are available to all prospective applicants. All applicants are interviewed by the DTI. This gives them an opportunity to expand on and draw attention to particular points in their applications, and gives the DTI an opportunity to probe aspects of them, in particular the work programme offered and the applicants environmental management practice.
3.15 Licence holders are required to pay a fee for the licence itself, consisting of one payment of a fixed sum for each square kilometre comprised in the licensed area for the initial term of the licence, and subsequent payments on an escalating scale up to a specified maximum for each year of the further term. In addition, an application fee is charged which is intended to cover the costs of processing applications. The application fee for the 15th and 16th Round was £3,700. This was revised to £2,820 for the 17th (Frontier) Round.
3.16 Powers exist for the Secretary of State for Trade and Industry to set production levels from fields if the Government considers this to be in the national interest. These powers would only be used in exceptional circumstances.
OFFSHORE HEALTH AND SAFETY
3.17 Since April 1991, following the recommendation in Lord Cullens report on the Piper Alpha tragedy, the Health and Safety Commission (HSC) and the Health and Safety Executive (HSE) have been responsible for offshore workforce health and safety on the UKCS. The location of HSEs Offshore Safety Division is given in Appendix 17.
3.18 The offshore legislative regime developed by HSE is based around the Offshore Installations (Safety Case) Regulations 1992 (SCR). These require operators to have a safety case for fixed and mobile installations accepted by HSE before operations can begin, and for safety cases to be maintained and submitted to HSE at various times throughout the life-cycle of the installation. The SCR are supported by three other major sets of regulations.
3.19 The final piece of the new legislative regime was put in place in 1996 with the coming into operation of the Offshore Installations and Wells (Design and Construction, etc.) Regulations (DCR).
3.20 Along with the Offshore Installations and Pipeline Works (Management and Administration) Regulations 1995 (MAR) and the Offshore Installations (Prevention of Fire and Explosion, and Emergency Response) Regulations 1995 (PFEER), the DCR support the SCR, and provide a comprehensive framework of modern goal setting health and safety legislation for the offshore oil and gas industry.
3.21 MAR, PFEER and DCR complement the safety case regime with a wide range of further goal setting objectives covering among other things:
3.22 Significantly, introduction of the wells safety provisions in the DCR saw the clean break in regulatory responsibility for licensing and health and safety matters between the Department of Trade and Industry and the Health and Safety Commission/Executive (HSC/E).
3.23 The safety case regime is now mature. By 31 March 1997, HSEs Offshore Safety Division had accepted 428 safety cases and received 29 design safety cases which are not subject to formal acceptance.
3.24 An interim evaluation of the SCR undertaken in 1994/95 found that:-
3.25 Further evaluation of all four sets of regulations, SCR, MAR, PFEER and DCR will be conducted during 1998 to assess their effectiveness. A final phase of evaluation will be conducted in 2000/01 which will major on looking at the legislative change from the certification of offshore installations to the verification of the safety critical elements.
3.26 The Department of Trade and Industry (DTI) is responsible for the implementation and development of Government policy on decommissioning offshore oil and gas installations and submarine pipelines. The primary legislation which regulates the orderly decommissioning and disposal of redundant installations and pipelines is the Petroleum Act 1987 (the Act).
3.27 The Act enables a decommissioning obligation to be served on the owners of every offshore installation and pipeline on the UKCS. Those parties served with a notice will be jointly and severally liable to submit their decommissioning programme for approval following consultation with relevant interested parties. The parties will also be responsible for the implementation of the approved programme.
3.28 The Government attaches high importance to gaining unanimous agreement in the OSPAR Commission (contracting parties to the convention for the Protection of the Marine Environment of the North East Atlantic) for the future rules for the disposal of offshore installations. The case being put forward is that, in practice, the vast majority of existing offshore installations will be brought onshore for re-use, recycling or disposal. Studies to identify generic solutions for various categories of installations have shown that to be the case. Studies have also shown that the generic solution for large concrete installations is to leave them in place. There is no agreed generic solution for the heavy steel installations located in deeper water. For this category of installation, consideration will have to continue to be taken on a case-by-case approach with decisions based on a sound scientific analysis and in the light of open and transparent consultation. Our approach would be based on a presumption in favour of land disposal except where, taking account of the environment as a whole, such a course is neither safe nor practicable.
3.29 Shell have submitted a revised draft abandonment programme and best practicable environmental option (BPEO) study for the Brent Spar oil storage and offshore loading buoy formerly used in the Brent field. The draft programme proposes to re-use the Brent Spar as part of a quay extension project in Norway. Shells proposals are being carefully considered on the basis of a sound scientific analysis and in the light of full consultations with the Government of Norway and with other relevant interested parties.
3.30 Before reaching a decision the Government will be advised by the expert group set up in 1995 under the auspices of Professor Krebs, Chief Executive of the Natural Environment Research Council.
3.31 Draft Guidance notes on decommissioning were issued as a consultative document in 1995. The outcome of international discussions will need to be taken into account before they are re-issued in the form of a further consultative document. There will be wide consultation before new guidance notes are published.
3.32 The DTI has reviewed its policy in respect of the decommissioning implications of mature asset transfers.
3.33 The DTI will issue a guidance note to the Industry specifically dealing with the issue of financial security and the measures which may be necessary to satisfy the Secretary of State for Trade and Industry in mature asset transfers. This guidance will be issued during 1998. See Appendix 12 for information on decommissioned installations.
| Table of Contents
Chapter 1 | Chapter 2 | Chapter 3 | Chapter 4 | Chapter 5 | Chapter 6 | Chapter 7 | Chapter 8 | Chapter 9
Appendix 1 | Appendix 2 | Appendix 3 | Appendix 4 | Appendix 5 | Appendix 6 | Appendix 7 | Appendix 8
Appendix 9 | Appendix 10 | Appendix 11 | Appendix 12 | Appendix 13 | Appendix 14 | Appendix 15 | Appendix 16 | Appendix 17
Plate 1 | Plate 2W | Plate 2E | Plate 3W | Plate 3E | Plate 4W | Plate 4E | Plate 5W | Plate 5E | Plate 6 | Plate 7
Plate 8W | Plate 8E | Plate 9W | Plate 9E | Plate 10W | Plate 10E | Plate 11 | Plate 12