United Kingdom Announces Unconventional Petroleum Licensing Model Clauses
Wednesday, June 25, 2014
Energy Minister Michael Fallon took the opportunity on 24 June 2014 at the UK Shale Conference to cite the energy security crises in the Ukraine and Iraq as further reason for the UK to focus on shale gas and oil exploration.
In the latest step towards the development of the UK shale industry, revisions to petroleum licence Model Clauses will be implemented to accommodate the practicalities of fracking compared with recovery of conventional resources. Specifically, and recognising that shale plays may cover vast areas (see, for example, the Bakken formation in North America and the Bazhenov formation in Russia), existing rules relating to operations and retention of acreage will be amended to allow greater flexibility for unconventional resource development.
Whilst we await further details of the new regime, it appears that concepts include “Production Plans” relating to specific areas of the licensed area and “Retention Agreements” allowing the licensee to retain acreage subject to approved work plans. Given that neither of these is particularly revolutionary (we already have development and production programmes, field delineation and phased relinquishment under the existing licensing regime), it will be interesting to see the specifics that facilitate shale development. We might, for example, expect to see bespoke provisions relating to appraisal operations, continuous production and longer holding periods. The Government, however, is particularly cognisant of the issue of “land-banking”, and is apparently keen to dissuade licensees from sitting on large acreages by requiring “plans for meaningful activity” (although the precise meaning of this requires clarification).
The Government will also look to enhance access rights to information regarding operations. DECC will require licensees to submit well reports and production data, with confidentiality protection reduced significantly from four years to just six months. This is in line with offshore plans mooted for the UK, which see enhanced data sharing between operators as key to enhancing production, and will be a consideration for companies looking to take positions in the 14th Onshore Licensing Round that is expected later this year.
This announcement is certainly encouraging for the UK shale industry, and we await the text of the new Model Clauses with anticipation and interest; DECC’s current narrative of the Petroleum Model Clauses (Amendment) Order 2014 as “Make licences accommodate shale gas; permit onshore exploration; and otherwise make routine updates to onshore model clauses” is certainly not giving much away for now.
Alastair is a corporate lawyer who focuses on the energy and natural resources sector. His experience includes UK and international mergers and acquisitions, cross-border joint ventures and the development of major energy projects.
Darren is a corporate lawyer focusing on the energy sector. He advises clients on upstream, midstream and downstream oil and gas M&A transactions, with a particular emphasis on cross-border deals, having advised on transactions involving assets in more than 30 jurisdictions. Darren also has a wealth of experience in relation to commercial arrangements relating to the oil and gas industry, including production sharing contracts, joint operating agreements, sales and transportation arrangements and joint venture issues.
Darren has been recognised in Chambers UK as being highly regarded for his work in the oil and gas sector and clients say that he provides "a full suite of support."
Nick Kendrick focuses his practice on transactional matters within the energy sector, particularly in the upstream oil and gas industry. He has experience on a variety of international energy transactions, including oil and gas, power and LNG. Nick has advised on joint ventures, M&A, asset acquisition and divestment, licensing and operations across Europe, Africa and Asia.
He also has experience dealing with midstream and downstream transactions, including transportation agreements, transactions for the...