Chapter 5 - Exploration, Appraisal and Licensing

5.1 A total of 96 exploration and appraisal wells were drilled during 1997. These comprised 61 exploration and 35 appraisal wells. Side-tracks (14) are included in these figures where they contributed new geological information.

5.2 Exploration drilling activity during 1997 declined against the 1996 figure, and 9 significant discoveries have been announced. Historical figures for offshore exploration and appraisal drilling activity are given in tabular form in Appendix 2.

5.3 "Significant discovery" refers to wells where test flow-rates in excess of 15 MMSCFPD or 1000 BOPD were achieved or achievable. It does not necessarily indicate the commercial potential of a discovery. Significant offshore discoveries available for publication are listed in Appendix 3.

5.4 Activity in the main geological areas of the UKCS, shown on the map, (Chart 5.1), is summarised below.

5.5 During 1997 drilling activity paralleled that of 1996 with 13 exploration wells, and 14 appraisal wells, including 6 side-tracks, being drilled. The areas of most interest were Quadrant 9 and the northern part of Quadrant 16. One significant discovery was announced from a well which commenced drilling at the end of 1996. The well has since been tied-back to existing facilities and is currently in production.

5.6 Drilling activity remains at a steady level with 6 exploration wells being drilled on five 16th Round licences and 1 on a 17th Round award. Three appraisal wells, including 1 side-tracked well, were drilled on the Clair discovery.

5.7 Exploration activity was maintained at the level seen in 1996 with a total of 11 wells commencing drilling in 1997. Over half were either initial term obligation wells or wells drilled on fallow blocks. Four appraisal wells were drilled including a side-tracked well. Two significant discoveries on 14th Round licences were announced; however one of these wells commenced drilling in the latter part of 1996.

5.8 There was a decline in both exploration and appraisal activity in 1997 compared to 1996 with a total of 13 exploration wells, including 2 side-tracked wells, and only 5 appraisal wells. One 17th Round commitment well was drilled during the year. Three significant discoveries were announced, one the result of a well which had been spudded in 1996.

5.9 Exploration activity increased in 1997 to 16 wells from the 12 drilled in 1996. The majority were initial term obligations and, noticeably, outstanding drilling commitments arising from 12th Round licence awards. Appraisal activity also increased in 1997 to 9 wells, compared with only 4 in 1996 with 4 of these being side-tracked wells. Three significant discoveries were announced, 2 of which were made on licences awarded in the 1st Round.

5.11 An exploration well was drilled from a location onshore to test an offshore target.

5.13 Activity increased onshore with 12 exploration wells and 2 appraisal wells being drilled in 1997 compared with 6 and 1 respectively for 1996. Two oil discoveries were made.

5.14 Historical figures for onshore exploration and appraisal activity are tabulated in Appendix 2.

5.15 A slight decline in offshore development drilling was seen in 1997 with only 257 wells being drilled compared with 261 in 1996. The total figure includes 78 side-tracked wells. Reduced activity in the Northern North Sea accounted for the reduction in the numbers.

5.16 Onshore development drilling activity was slightly reduced in 1997 to 26 from 28 in 1996.

5.17 The first Licensing Round was held in 1964 and the most recently completed was the 17th in April 1997. The 18th Seaward Licensing Round is now in progress, the closing date for receipt of applications being 11th September 1998. In this round, applications have been invited for all unlicensed acreage in the Northern, Central and Southern North Sea and in Liverpool Bay, Morecambe Bay and the adjacent Irish Sea, with the exception of certain blocks which have been excluded from the offer in order to protect environmental sensitivities and the interests of other sea users.

5.18 In addition to the licensing rounds, blocks may, under certain circumstances, be offered for licensing between rounds. The most recent use of this procedure was the open offer of blocks 204/14 and 204/15 in July 1997; both blocks were awarded to a consortium led by Arco British Limited in December 1997.

5.19 The first awards of Petroleum Exploration and Development Licences (PEDLs) were made in the 7th Landward Licensing Round, which was completed in March 1996. The results of the 8th Landward Round were announced in February 1998, with awards of 34 licences covering 122 blocks. This round attracted particular interest in gas from coal sources, including vent gas and gob gas as well as conventional coal bed methane. It is proposed to introduce a new form of landward licence designed to meet the needs of coal source gas exploitation more closely than the PEDL, which was primarily designed to regulate exploration for and exploitation of conventional oil and natural gas resources. Consultation on the new coal gas licence is expected to take place during 1998.

5.20 At the end of 1997, there were 129 landward petroleum licences covering an area of some 19,941 sq km. This represents a net reduction of 15 licences (2,656 sq km) compared with 1996.

5.21 In 1996, the DTI initiated a second review of fallow blocks. The first review of fallow blocks, held in the late 1980’s, proved very successful in encouraging licensees to bring forward plans to either explore or surrender acreage awarded in earlier licensing rounds.

5.22 The latest review identified 115 blocks awarded between the 1st and 8th Rounds of licensing that had not seen any exploration and appraisal drilling for 6 years or more. As of 31st December 1997, 24 blocks had been removed from the fallow category as a result of new appraisal drilling, including the announcement of one new significant discovery (29/1b-5). A further 15 blocks had been partially or fully surrendered. The majority of the remaining blocks were the subject of new 3D seismic acquisition or were offered to Industry for farm-out. The DTI continues to monitor plans for the small number of blocks where no firm action has yet been taken and will seek action from the licensees for any blocks which enter the fallow category in future.

5.23 Under the Petroleum (Production) Act (Northern Ireland) 1964, landward petroleum licensing in Northern Ireland is the responsibility of the Department of Economic Development (see Appendix 17 for address details).

5.24 At the end of 1997 there were 11 Landward petroleum licences covering an area of some 3,377 sq km (a situation unchanged from the end of 1996). The Department operates an open licensing policy and is prepared to consider applications at any time.

BOX 5.1 EXPLORATION ON THE UK CONTINENTAL SHELF (UKCS)

The impetus to begin and then sustain exploration on the UKCS arose from a variety of reasons: legal, technological, and economic. International argument about a country’s rights to its adjacent sea bed began to be settled after the Geneva Convention on the Law of the Sea of 1958 and the United Nations Law of the Sea Convention (UNLOSC), which established rules relating to the Continental Shelf, the most significant of which gave countries with coastlines sovereign rights to explore and produce the natural resources in its continental shelf to a distance of 200 miles from shore (except, of course, where this would impinge on a neighbouring country’s area, though by 1965 agreement had been reached with Norway, Denmark, West Germany and the Netherlands on the drawing up of median lines). The UKCS Act 1964 led to the division of the UK Continental Shelf into quadrants and blocks and the first UK licensing round.

Oil companies had already tried to extend shore facilities into adjacent water in other parts of the world and now had the technology to produce hydrocarbons offshore, although they had no experience of working in rough North Sea conditions. The 1959 discovery in Groningen in Holland of a large onshore gas field encouraged companies to believe that other significant gas field accumulations might exist formed on geological accumulations offshore. Later, the discovery of a small offshore Danish oil field in 1966, and the large Norwegian Ekofisk oil field in November 1969, encouraged the search for oil and gas in UK waters. Hitherto it had been believed that sedimentary rocks were absent between UK and Norway.

Initial UK exploration effort concentrated on finding gas in the Southern Basin. The first significant discovery in UK waters was the West Sole gas field in December 1965. In March 1967 West Sole also became the first gas field in production. First oil was found in Arbroath Field in late 1969, but this field was not brought into production until 1990. The first oil field to be brought into production was Argyll in June 1975, beating Forties, discovered in the late 1970s, by a few months. Oil production grew rapidly thereafter.

Oil prices weakened in the 1990s, and both Government and the industry sought ways to improve the attractiveness of the UK’s oil and gas sector in the face of competition from other petroleum provinces. The Government introduced the first out-of-round licensing awards in 1992 to facilitate early development of fields and sponsored a working party, with membership drawn from the oil industry, the offshore supplies industry, unions and the DTI. This led to a major industrial co-operative venture known as CRINE (Cost Reduction Initiative for the New Era), which has resulted in project cost savings of around 30 per cent on capital and operating costs.

With production still increasing and with many new areas being explored and developed, the UK is assured of being a major oil and gas producer well into the next millennium.