Wood Mackenzie: UK licensing round unlikely to reverse declining offshore drilling trend
The North Sea Transition Authority (NSTA) launched its 33rd offshore licensing round on Friday, offering 898 blocks (with part-blocks available), in a round which could result in over 100 licenses being awarded.
Acreage includes blocks in the Southern North Sea, Central North Sea, Northern North Sea, West of Shetland and East Irish Sea. The application period will run until January 2023, with first licence awards expected from Q2 2023.
Global research and consultancy group Wood Mackenzie analyzed the licensing round, concluding that it is unlikely to spur significant offshore drilling, which has steadily declined recently.
“While we think exploration still has a role to play in the UKCS, drilling activity is already at historic lows and the addition of new acreage – which will have been offered up in previous rounds – is unlikely to reverse that trend significantly,” said Neivan Boroujerdi, Research Director - North Sea Upstream Oil & Gas at Wood Mackenzie.
"It remains to be seen what industry appetite will be. With tax relief on exploration and development spend increasing from 40% to over 90% under the Energy Profits Levy, there is an immediate incentive to ramp-up activity while the levy is in place.
“But typically, most active explorers and developers are local players who will not be able to take full advantage and will require farm-in partners. Can the bigger IOCs overcome increasing environmental scrutiny and political instability to step up the plate?”
Wood Mackenzie’s analysis:
The last UK round was in 2019 following a government-led review into the regime. Since then, UK and European energy security has been thrown into the spotlight and a climate compatibility checkpoint has been introduced to ensure any round is consistent with net-zero goals.
The UK Government has already announced it is looking to fast-track various infrastructure projects and has emphasised hopes to increase domestic production. This, combined with the launch of the new round, indicates continued government support for the industry.
There have been discoveries in recent years, but not since the 27th round in 2012 has new acreage delivered a commercial discovery. And the first well from the last round (2019) is not expected until 2023.
The discovered resource opportunities could have a bigger impact. We estimate nearly two billion boe will be up for grabs, over a third of which is gas. The licensing round highlights four priority cluster areas in the Southern North Sea (Greater Pegasus Area, Greater West Sole Area, Greater Cygnus Area and Cotton Area).
These clusters include 30 predominantly gas discoveries that could be developed quickly and make use of nearby infrastructure. In total, they could deliver 1 tcf of new supply, enough to meet 40% of the UK’s yearly gas demand. While these discoveries will have been previously relinquished, current commodity prices and area-wide solutions could unlock on their potential.
