PESGB October 2016
- Coming up to the wire, Colin Percival, PESGB President 2016
- Africa’s Duelling Dragons, Angola / Nigeria the fight for Oil Supremacy
- Southeast Asia struggling to keep up production
Plus much more inside
Coming up to the Wire
The UKCS 29th Licensing Round Application deadline is set for 2pm on Wednesday 26th October. Companies will be busily uploading their applications to LARRY, the application portal, in advance of this deadline, hoping that the system doesn’t crash at a critical moment. They will also be making sure that their partners are on board with the commitment work programmes and also have their submission material compiled and ready to upload. The new Innovate Licence allows significant flexibility on licence length, and no doubt there will be a learning period for all on this regarding work programmes and timings and of course the all-important marks scheme. Once the applications are submitted the focus will move straight on to the presentation material for the call in meetings with OGA which are likely to start in November. As the 29th Round is largely focussed on frontier areas, it is unlikely to see many firm and contingent exploration well commitments, and work programmes will be focussed around technical studies, reprocessing and new seismic acquisition. As ever the awards will make for some interesting reading.
This is also the time of year when operators hold their Operating Committee Meetings to review 2016 activity and discuss and hopefully approve 2017 Work Programmes and Budgets. With the oil price around $50 barrel and 2016 having been a year of deferring work and eliminating discretionary spend, it is inevitable that licence commitments will start to come into sharp focus with regard to 2017 work programmes and budgets.
The initial term on a traditional licence on the UKCS is 4 years, during which the commitment work programme should be completed. Consequently 2 years of deferring work as we have already seen, will create severe time pressure on delivering commitment work programmes within the initial 4 year licence term. This situation is particularly acute for the 28th Round Promote Licensees who only have until around year end to find a farminee and operator to commit to a well, and continue these licences into years 3 & 4 (2017 & 2018) or allow the licence to lapse. With most operating companies deferring their own commitments it is very difficult to see why they would take on any additional promote licences at the present time, which will require a commitment to drill in 2017 or 2018. This is very unfortunate for the promote licence holders who will be forced in many instances to allow the licences to lapse.
These promote companies have had a particularly difficult time, with only two years to find a farminee and operator. During this time the farmout market has been dire, as both exploration and discretionary spend have been the early casualties of cost cutting. The promote companies have also been hit with the unexpected and additional cost of an OGA levy being imposed on each licence. This has substantially increased their licence holding costs during this period. Unfortunately this levy was not set at a lower rate for promote licences as has been the case with licence fees during the two year promote period.
From the 29th Round onwards the new Innovate Licence will assist Promote Companies in that it can provide for a longer period before an approved licence operator is required and also a longer period of lower licence fees. In the short term, however, we are likely to see significant acreage churn with many licences returned with no new wells drilled. This acreage churn is a significant cost and administrative burden to the industry that needs to be eliminated wherever possible. In addition it is probably time to review the OGA levy and see if this requires some fine tuning.
Next month sees PETEX being held at ExCeL from the 15th to the 17th November. In terms of technical presentations, networking and seeing what technology is on offer this will be an event that is very hard to beat for UK based geoscientists. Discounted rates are available for unemployed or retired members and a one day rate is available for those who cannot make the whole event. I look forward to seeing you there