Chapter 5 - Exploration, Appraisal and Licensing

5 Exploration, Appraisal and Licensing

OFFSHORE EXPLORATION AND APPRAISAL

5.1 A total of 80 exploration and appraisal wells were drilled during 1998. These comprised 47 exploration and 33 appraisal wells. Side-tracks (21) are included in these figures where they contributed new geological information.

5.2 Exploration drilling activity during 1998 declined by approximately 23% against the previous year with 7 significant discoveries being 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 opposite.

Chart 5.1 - Sedimentary Basins

Northern North Sea (including East Shetland Platform)

5.5 During 1998 drilling was at a similar level to that of 1997 with 10 exploration wells, and 17 appraisal wells, including 2 side-tracks, being drilled. One significant discovery was announced from a well drilled adjacent to existing infrastructure on a 7th Round licence.

West of Shetland

5.6 Since 1996 exploration drilling activity has remained at a steady level with 6 exploration wells drilled in 1998. However, in 1998 no appraisal wells were drilled.

Moray Firth

5.7 The area has seen a decline in both exploration and appraisal activity this year, with the focus on key play types. A total of 5 exploration wells were drilled in 1998, nearly half of which were obligation wells. One of these obligation wells was also located on a fallow block. The remaining wells were drilled on 3rd and 4th Round licenses. The two appraisal wells were drilled to evaluate a 1997 discovery. One significant discovery was announced which was a well that commenced drilling in 1997 on a fallow block.

Central North Sea

5.8 Exploration has remained at a consistent level over the last two years with 12 wells commenced in 1998 of which two were side-tracks. Half of these were obligation wells, primarily on 12th and 16th Round licences. Appraisal drilling has seen an increase from 5 in 1997 to 12 in 1998, although 6 of these were side-tracks. Two significant discoveries were announced in the area, both of which were made on old 1st and 2nd Round licences. One of the discoveries has been fast-tracked to a development.

Southern North Sea

5.9 Exploration drilling activity has reverted to 1996 levels, with 12 wells drilled in 1998. Several of these were obligation wells relating to the 11th and 12th licence Rounds. The number of appraisal wells in the area was at a low level, two wells having started, one of which was a side-track from an exploration well. Three significant discoveries were announced, including one well, drilled on an Out of Round licence award in September, and already on production.

West of England and Wales (including Irish Sea and Cardigan Bay)

5.10 Activity was at a similar low level to 1997 with two exploration wells drilled in the East Irish Sea. No discoveries were announced.

English Channel

5.11 There was no exploration or appraisal drilling activity in the Channel area.

Other Offshore areas

5.12 There was no other drilling in other areas.

ONSHORE EXPLORATION AND APPRAISAL

5.13 Five exploration wells were drilled in 1998, a decrease compared with the wells drilled in 1997. However, appraisal drilling increased to 9 compared with 2 for 1997. Three of the exploration wells were announced as oil discoveries in 1998 including one well that had commenced in 1997.

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

DEVELOPMENT DRILLING

5.15 A growth in offshore development drilling was seen in 1998 with 281 wells drilled compared with 257 for 1997. The total figure includes 89 side-tracked wells. Increased drilling activity in the Central North Sea, Southern North Sea and west of Shetlands accounted for the growth in the numbers.

5.16 Onshore development drilling activity was slightly reduced in 1998 to 21 from 26 in 1997.

LICENSING

Seaward Licensing Rounds

5.17 The first licensing round was held in 1964. The 18th Round was announced on 9 June 1998 and was the first Round to offer acreage on an ‘open basis’ where almost any unlicensed blocks in the North Sea and Morecambe and Liverpool Bays were made available for licence. In all, 602 blocks were available and applications were received for 82 of them The Round was completed in December 1998, when 44 licences were awarded covering 78 blocks in the North Sea. A number of the licence awards were made on what had been fallow blocks relinquished by previous licensees, while others were in areas that had previously been unexplored. The Round was notable for the creative and innovative exploration proposals put forward by the successful applicants.

5.18 There were no ‘Out of Round’ offers made in 1998.

Landward Licensing Rounds

5.19 No Landward Licensing Rounds have been announced or concluded since the 8th Round in February 1998 (details were included in the 1998 Energy Report Volume 2).

FALLOW BLOCKS

5.20 The fallow blocks issue was first highlighted during the Energy Select Committee’s inquiry into the UK independent oil sector in 1988. During the inquiry many smaller independent companies voiced concerns that their efforts to farm-in to older licences where there had been little recent activity were being hampered by major operators who were reluctant to divest their interests.

5.21 It was clear that the rental and other disciplines for the early licence Rounds were, by current standards, very relaxed and it was subsequently agreed in 1989 that a more strongly focused initiative was required to encourage companies to address this problem. Later that year the first review into fallow blocks was initiated by the Department of Energy. This review identified 125 blocks awarded between the 1st to 4th Rounds of licensing that had not been drilled for 10 years or more and, in some cases, had not been drilled at all. By the end of 1993 only 9 blocks remained in the fallow category - 79 blocks were drilled and 37 blocks were surrendered.

Current Review of Fallow Blocks

5.22 In 1996, as part of a wider review of the licensing system, it was decided to address this issue once more in order to continue the objective of achieving thorough and expeditious exploration of the UK Continental Shelf. This exercise extended the scope of the first review and identified 115 blocks awarded between the 1st and 8th Rounds of licensing that had not seen any exploration or appraisal drilling for the shorter period of 6 years or more.

5.23 As of 31st December 1998, 29 blocks had been removed from the fallow category as a result of new drilling and 18 blocks had been either partially or fully surrendered. Furthermore, 3 wells that have been drilled on fallow blocks have resulted in the announcement of further significant discoveries.

5.24 Throughout 1999 the Department of Trade and Industry will continue to encourage companies to bring forward activity plans for those blocks which remain fallow. This objective can be achieved by relinquishing the blocks or formulating plans for new drilling either by the current licence holder or by stimulating activity through farm-ins.

NORTHERN IRELAND

5.25 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 16 for address details).

5.26 At the end of 1998 there were 9 landward petroleum licences covering an area of some 3150 sq km, a reduction of 230 sq km from the end of 1997. The Department operates an open licensing policy and is prepared to consider applications at any time.

Chart 5.2 - JNCC Regional Coastal Reports

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