Licensing Overview

All rights to the nation’s petroleum resources are vested in the Crown. But the Secretary of State (for Trade and Industry – i.e. the Government) can grant licences that confer exclusive rights to "search and bore for and get" petroleum. Each of these licences confers such rights over a limited area and for a limited period.

Most Licences follow a standard format, but DTI is willing in principle to consider adapting new licences to suit special scenarios.

The Secretary of State has discretion in the granting of licences, which he exercises to ensure maximum exploitation of this valuable national resource, but there are other considerations that s/he must also take into account – protection of the environment and the interests of other users of the sea, for instance.

Licences can be held by a single company or by several working together, but in legal terms there is only ever a single Licensee, however many companies it may include. All the companies on a Licence share joint and several liability for operations conducted under it .

Each Licence actually takes the form of a Deed, which binds the Licensee to obey the licence conditions regardless of whether or not s/he is using the Licence at any given moment.

DTI expects companies to work their licences. In recent years, the amount of acreage that has been left untouched, and those exclusive rights unexploited, has become a matter of concern to us.

History

The UK ’s onshore petroleum licensing regime was set up under the impetus of the fuel demands of the First World War, although the first licences weren't issued until 1935.

Offshore licensing did not begin until the North Sea boom of the sixties. The Ministry of Power issued the first offshore licence, P001, in 1964, and its successor the Department of Trade & Industry issued the one-thousandth licence in 1999.

Geography

DTI ’s Licensing system covers oil and gas within Great Britain, its territorial sea and on the UK Continental Shelf (UKCS).

Northern Ireland ’s offshore waters are subject to the same licensing system as the rest of the United Kingdom Continental Shelf, and in return Northern Ireland receives a biennial payment from overall royalty and rental payments calculated in proportion to Northern Ireland ’s population. Northern Ireland issues its own Licences to cover its onshore area, independently of DTI (contact: the Minerals & Petroleum Branch of the Dept of Economic Development ’s Energy Division; Tel: 01232 529900).

The Isle of Man issues Licences for its own onshore area and territorial waters (contact: the Natural Resources Division of the Isle of Man ’s Department of Trade & Industry; Tel: 01624 685676).

The designated area of the UKCS has been refined over the years by a series of designations under the Continental Shelf Act 1964 following the conclusion of boundary agreements with neighbouring states, the most recent being that reached with the Faeroe Islands in May 1999.

Coordinate systems

Offshore

Guidance notes on Offshore co -ordinates Onshore Guidance notes on Onshore co-ordinates Rentals

Each licence carries an annual charge, called a rental. Its purpose is to encourage licensees to surrender acreage they don ’t want to exploit, so as to free it up for others who do.

Rentals fall due each year on the licence anniversary (except that for pre -20th round offshore production licences in their Initial Terms, rentals only fall due in Year 1). They are charged at an escalating rate on each square kilometre that the Licence covers at that date.

Terms (periods)

Petroleum Production Licences (offshore) and Petroleum Exploration and Development Licences (onshore) are valid for a sequence of periods, called Terms. These Terms are designed to follow the typical lifecycle of a field: exploration, appraisal and production. Each Licence expires automatically at the end of each Term, unless the Licensee has made enough progress to justify moving to the next Term.

The Initial Term is usually an exploration period. It ’s normally set at four years, although it can be longer for ‘frontier’ Licences. It carries a Work Programme of exploration activity that DTI and the Licensee will have agreed as part of the application process. The Licence expires at the end of the Initial Term unless the Licensee has completed the Work Programme by then. At that time the Licensee must also relinquish a fixed amount of acreage (usually 50%), which is another attempt to ensure that the Licensee has explored the whole acreage by then.

The Second Term is intended for appraisal and development. It lasts for five years for onshore licences and four for offshore. The Licence expires at the end of the Second Term unless the Secretary of State has approved a Development Plan by then.

The Third Term is intended for production. It lasts for 20 years for onshore licences and 18 for offshore. The Secretary of State has the discretion to extend it if production is continuing, but DTI reserves the right to reconsider the provisions of the Licence before doing so, especially the acreage and rentals.

Relinquishments/surrenders

Licensees are entitled to ‘determine’ (i.e. surrender) their Licences, or part of the acreage covered by it, at any time (unless the licence is still in its Initial Term and the Work Programme has not been completed). In fact, DTI positively encourages the surrender of acreage unless the Licensee actually intends to work it, and a minimum relinquishment of acreage at the end of the Initial Term is actually a condition of most Licences.

Partial surrenders are subject to restrictions on the complexity of the area relinquished, because we do not wish to create unlicensed areas so irregular in shape that they would be unattractive to other companies.

Multiblock licences

Many licences cover more than one block. The term "multiblock licences" has come to refer to offshore licences where the blocks have widely -divergent licence groups of companies. The reason is generally that the blocks are scattered geographically.

We recognise the problems that can arise and we have undertaken not to issue any more licences covering scattered areas. In principle we would also be happy to split existing multiblock licences, but one unintended effect of the Hydrocarbons Licensing Directive Regulations 1995 is that we could not do so without opening up the acreage to free competition. This of course makes it most unlikely that current licensees would seek a split in the first place, so at present splitting multiblock licences is not a feasible prospect. We are seeking a legislative slot to amend the Regulations, and the multiblock licence is one of the issues that we would seek to address.

LEGISLATIVE BACKGROUND

Petroleum Act 1998
Part I of the 1998 Act (and before it, the 1934 Act) vests all rights to petroleum in the Crown, including the rights to search for, bore for and get it. It then goes on to empower the Secretary of State to grant Licences to search for and bore for and get petroleum to such persons as he thinks fit.

Part III of the Act deals with "Submarine pipelines" (see http://www.og.dti.gov.uk/upstream/infrastructure/index.htm) and Part IV deals with "Abandonment of Offshore Installations " (see http://www.og.dti.gov.uk/upstream/decommissioning/index.htm).

Model Clauses
As with any licensing system, many of the detailed regulatory provisions are laid down in conditions attached to the Licences. The Petroleum Act is rather unusual in that these conditions ("Model Clauses") are published in secondary legislation. In the past, they have been incorporated into Licences by means of a single short paragraph, but with the 20th round they are set out in full in the licence itself, for the sake of clarity. It is the Licensee’s responsibility to ensure that these conditions are not breached.

A number of different sets of Model Clauses were gathered together in the Petroleum (Current Model Clauses) Order 1999 (No 160). This Order is available on the HMSO Website at http://www.legislation.hmso.gov.uk/si/si1999/19990160.htm.

The Model Clauses attached to existing Licences are not affected by the issue of subsequent sets of Model Clauses, except through specifically retrospective measures.

Hydrocarbons Licensing Directive Regulations 1995

In 1994, the EU laid down strict rules that Member States have to follow when issuing petroleum licences, covering such things as the factors that may (and may not) be taken into account when deciding whether or not to issue a licence, and the minimum amount of public consultation.

These rules were contained in the Hydrocarbons Licensing Directive , which was implemented in the UK in 1995 by means of Hydrocarbons Licensing Directive Regulations.

TYPES OF LICENCE

Offshore

Production Licences

The main type of offshore Licence is the Production Licence, of which the DTI and its predecessors have now granted more than a thousand. In spite of their name they don ’t cover just production - they cover the full life of a field from exploration to decommissioning. They cover relatively small areas – typically a couple of hundred square kilometres.

Exploration Licences

Some companies carry out pure exploration over wide areas of the offshore sector, and don’t need exclusive rights to do it. Production Licences would be impractical and prohibitively expensive for such activities; hence DTI also issues Exploration Licences.

Exploration Licences run for three years at a time, and allow exploration anywhere on the United Kingdom Continental Shelf except on any area that is covered at the time by a Production Licence. (If the holder of an Exploration Licence wants to explore acreage covered by a Petroleum Licence, it will need to act under the Production Licence and so will need the agreement of the holder of the Production Licence.)

Petroleum production, or any drilling beyond 350m deep, is not permitted under an Exploration Licence.

Onshore

Petroleum Exploration and Development Licences

Onshore licences are called Petroleum Exploration and Development Licences (PEDLs), but they're similar in form to the offshore production Licences, with Model Clauses and a six -year Initial Term, five -year Second Term and a 20 -year Final Term.

Completion of the agreed exploration Work Programme in the Initial Term is a precondition for entry into the Second, and approval of a Development Plan in the Second Term is a precondition for entry into the Third.

Before 1996, DTI issued a sequence of separate licences for each stage of an onshore field ’s life: an Exploration Licence, an Appraisal Licence, a Development Licence and a Production Licence. We introduced PEDLs at the Eighth Licensing Round to reduce the bureaucratic burden of issuing a series of Licences.

Supplementary Seismic Survey Licences

If a PEDL -holder wants to shoot a seismic survey to analyse the subsurface right up to the boundary of his licensed area, he actually has to operate his survey equipment a little way outside it. If that means working in unlicensed acreage, he can seek a Supplementary Seismic Survey Licence (SSSL), which covers a kilometre -wide strip adjacent to an existing PEDL.

Any new PEDL that is subsequently issued over the same acreage will automatically terminate the SSSL. If there ’s only a partial overlap, the SSSL will cease to operate on that overlap.

Older types of licence

There are several other types of onshore licence. DTI no longer issues any of them, but a number of them are still in force. These are:

• Mining Licences,
• Exploration Licences,
• Development Licences,
• Appraisal Licences
• and Production Licences.

Mining Licences

[Awaiting text from DTI]

Exploration Licences (XL or EXL), Production Licences (PL), Appraisal Licences (AL) and Development Licences (DL)

The Petroleum (Production) (Landward Areas) Regulations 1984 replaced the previous system of two types of licence (Exploration Licences (XL) and Production Licences (PL)), with three: a new type of Exploration Licence (EXL), Appraisal Licences (AL) and Development Licences (DL).

The Department of Energy issued EXLs from the First Onshore Licensing Round (1986) until the Sixth (1992).
Each Exploration Licence (EXL) ran for six years and carried an agreed Work Programme (just like the six -year Initial Term of a modern PEDL). The five -year Appraisal Licence gave the Licensee time to prepare a Development Programme and get long -term planning permission. Only if both of those were in place would the Department consider issuing a 20 -year Development Licence.

Today, if one of the few surviving EXLs reaches its expiry date (and if the Work Programme has been completed, of course) it can be converted to PEDL terms. That means that from then on it has effect as though it had been issued as a PEDL in the first place and is now entering its "second" term, (although its name doesn't change, so it is still called "EXLSO-and-so").

Methane Drainage Licences

Many coalmines vent methane to the atmosphere, or else accumulate methane that must be dealt with by the mine -owner. Either way, the methane can create a health & safety issue, and as a very powerful greenhouse gas (up to 22 times more potent than CO 2), it presents an environmental problem as well.

Technically, capturing the drained methane requires a Licence under the Petroleum Act 1998, but safety is the Government ’s first priority and we have no intention of interfering with anyone ’s efforts to make a mine safe. To regularise methane drainage we are generally prepared to issue a Methane Drainage Licence (MDL) for a nominal fee.

An MDL grants permission to get natural gas "in the course of operations for making and keeping safe mines whether or not disused". It grants no exclusive rights, so it can overlap geographically with one or more PEDLs. MDLs generally cover much smaller areas than PEDLs – typically each covers one mine, although the Coal Authority holds a licence that covers the whole country.

Note:
Under the Energy Act 1976, as amended by the Gas Act 1986, the Secretary of State's consent is required to dispose of natural gas (whether at source or elsewhere) by flaring or by releasing it unignited into the atmosphere. There are a number of exemptions, including flaring that is already covered by one of the Licences listed here and gas supplied by a public gas supplier.

For further details, contact:
Ivor Newman;
Tel: 020 7215 5163;
fax: 020 7215 5292.

LICENCE AWARDS

Licensing rounds

DTI issues licences through competitive Licensing Rounds. We believe that this method yields better-quality bids than other methods. Unlike auctions, for instance, it does not divert significant sums of money away from exploration work, and it gives a much better expectation that a Licence will be awarded to the bid that promises to optimise the exploitation of the UK’s petroleum resources. We are committed to move to a regular timetable of one onshore and one offshore Licensing Round each year.

Out-of-round applications

The vast majority of Petroleum Licences (offshore) or Petroleum Exploration and Development Licences (onshore) are issued in Licensing Rounds, but particular cases may present compelling reasons to issue a Licence outside a Round. It rests with the company seeking an Out-of-Round Licence to make a case to DTI that we should invite Out-Of -Round Applications. Even if we do so, though, in most cases Hydrocarbons Licensing Regulations still require us to follow the usual procedures, including an invitation for applications in the European Journal at least 90 days in advance.

In the past, we have accepted clear grounds of urgency (for example temporary availability of a drilling rig, in which DTI is faced with a choice of getting a well drilled under an Out-Of-Round Licence or not at all). We will also consider cases where there is no prospect of competition anyway (generally because the acreage is only of interest to a company whose existing licence covers adjoining acreage). Any request to invite Out-Of -Round applications must show why the case is so unusual that an exception is justified - we would not consider simple impatience, or expectations of oil price movements, for instance.

TRANSFERS OF LICENCE INTERESTS

Background

The Secretary of State ’s consent is required before any transfer ("assignment") of licence interest can be made. This restriction arises from the Model Clauses attached to each licence [3].

Until 1994, any company seeking approval of an assignment had to submit pre -execution drafts of all the relevant legal documentation, including the Deeds of Assignment and novations of relevant agreements, all of which had to be examined by DTI lawyers. Since then, though, DTI has operated a much simpler procedure, based on a short checklist of relevant information. If we receive this information as part of the application, we usually won ’t need any further information. We reserve the right, however, to call for additional information if we think it necessary.

We will usually seek advice from the Oil & Gas Directorate ’s relevant Asset Team, the Exploration Team, Decommissioning Unit, DTI ’s financial advisers and others. We also circulate details of each application to Inland Revenue ’s Oil Taxation Office (OTO).

Policy

DTI believes that, on the whole, a good volume of licence assignments is a good thing, to the extent that it means that companies are improving their alignment on each licence. But that is not to say that we regard licences as merely tradable assets, and we expect companies to buy licence interests with a view to exploiting them, not merely to sell them on. In particular we don ’t expect companies to seek to sell their share in a Licence before the Initial Term Work Programme has been completed.

That said, there are a number of issues that can cause concern about any particular assignment.

Technical and financial capacity of the Licensee DTI will need to be satisfied that the proposed new company is suitable to be on the licence. That means checking its capacity to participate fully in licence operations and to discharge its licence obligations (see also Suitability Of Licensees ).

Decommissioning costs Financial capacity will be an even greater concern if significant decommissioning costs are likely to be incurred by Licensees in the near future. There is a dedicated Decommissioning Unit based in Aberdeen with the task of ensuring that future decommissioning liabilities are covered.

New entrants to the UK DTI will always take a company ’s track record into account. If the company is new to the UK, we will try to take account of a track record gained overseas. Where the proposed licensee is a subsidiary of a foreign parent, DTI will generally require an undertaking from the parent to support the licensee in its licence operations (see also Suitability Of Licensees).

Progress on Work Programme DTI will not usually allow a company to leave a licence before the agreed Initial Term work programme has been completed. Each applicant for a licence undertakes to contribute to a minimum amount of work, and DTI expects promises to be honoured.

Effect on operatorship arrangements DTI will not approve any assignment if it would result in a licence having no approved operator. So when an operator seeks to leave a licence, it will need to ensure that its remaining partners have agreed a replacement operator and that DTI is ready to approve their choice. This is especially important where production operatorship is concerned. Approving an operator can take time, especially a production operator with no previous track record of operating on the UKCS.

Licence alignment DTI would not usually expect to have to concern itself with this, but it is possible that a particularly glaring misalignment could raise concerns.

Infrastructure Again, this is a conceivable rather than a routine issue, but DTI might be concerned if, for instance, it seemed that an infrastructure owner was seeking to enter a licence group to influence tariffing negotiations.

Procedures

We have tried to simplify the approval process by identifying the information that we need to see, and setting it out as a Checklist of In formation Required . We ask companies to provide this information in a format as near as possible to the one indicated (including the numbering). This will save time all round. We ’ll seldom need to see legal documentation. This guidance also includes a dummy application showing the kind of thing we need to see.

It ’s the current holder of the licence interest who requires permission to transfer it. So it is the current licence holder that must make the formal application to DTI, although much of the information that DTI needs will have to come from the acquiring company, especially if it is a new start -up company or a new entrant to the UKCS.

Any particular transfer may raise other issues, and DTI would then need other information to consider those issues. For example, we normally ask for copies of earn -in agreements when these are part of the deal.

DTI may appraise the financial capacity of the acquiring company to establish whether or not it ’s likely to be able to meet its licence obligations. This may take some time, especially when the company takes time to provide the information. We usually advise companies seeking to buy in to a Licence to have this information ready so as to reduce delay. We may also need to get satisfactory assurances that subsidiaries of a group are able to discharge the obligations of a Licensee, often through a letter of support from the parent company.

Approval and after

If DTI is content that the transfer should proceed, we will send a letter conveying the Secretary of State ’s consent and approving the terms of any associated interest assignments or novation. This letter will also specify that the consent is conditional on the Deed of Assignment being made in a form "approved by the Secretary of State" (see Model Deed ). We think it will be suitable for most transactions, and we hope that companies will use it as often as possible, but its use is not compulsory. If you want to use a different form of Deed, you will have to submit a copy in advance, bearing in mind that it will have to be considered by DTI lawyers, and that will increase the processing time.

Paragraph (3) on page 2 of the Model Deed leaves it to you to decide whether jurisdiction should lie with the English or Scottish Courts. DTI has no preference.

Most of the Model Deed is common to Offshore and Onshore licence assignments. The only difference is in paragraph (B) on page 1, reflecting the different descriptions of the licences and the powers under which the licences were granted.

DTI needs its own copies of the executed deeds, submitted as soon as possible after execution and in any case within two weeks.

The form of execution is for the parties to decide.

"No objection in principle"

Sometimes, licensees ask DTI to confirm that we have "no objection in principle " to a proposed transfer, particularly in the case of an Earn -In agreement, in which the assignee ’s expenditure necessarily comes before the assignment. If DTI receives enough of the information listed in the Checklist of Information Required , we may be able to issue such an opinion. Almost by definition, this will be before all details are available so we won ’t be able to offer any binding undertaking, and it will not replace the formal consent described above.

In general this option should be avoided unless there ’s a good reason for it, because it doubles the amount of time that DTI has to devote to each transfer and so causes delay for all.

Processing time

The time we take to process any particular application will depend on such factors as its complexity, the quality of the information initially provided to us, the number of other applications we are processing at the same time, etc. In general, we will aim to process a straightforward case in 10 -12 working days (although we cannot guarantee that response time in any particular case). Production Operatorship and financial checks in particular can take longer.

Change of control

The Model Clauses do not impose any requirement for the Secretary of State ’s approval of a change of control of a Licensee (e.g. at a corporate takeover), but they do specify it as grounds for revocation (following the Licensee ’s failure to comply with an instruction from DTI to make a further change of control).

This can result in a request (for instance, by a bank that is financing the takeover) for an assurance that the Secretary of State will not exercise that power. DTI is generally willing to accept such requests, but they are not a part of DTI ’s statutory responsibilities and we cannot undertake to accord them the same priority as those jobs that are. Nor will we be able to offer any cast -iron promises – any assurance we give will be based on the information available at the time, and limited accordingly.

To consider such requests we will generally need the same information as for a Licence Assignment and will apply similar considerations.

Licence extensions

There are cases where a field looks set to continue producing when the relevant Licence expires. There is no general right of extension, but the Secretary of State does have discretion to extend the licence.

We will not extend a Licence years in advance, but if we agree that the field looks likely to outlast the Licence we will consider requests for a formal indication that we will extend the Licence when the time comes. Any such indication, besides being subject to the continuing satisfactory performance of licence obligations, will also reserve DTI ’s right to review the terms of the Licence at that time (particularly the rentals); and Licensees should not expect the extension to cover any acreage outside the field.

SUITABILITY OF LICENSEES

DTI intends to maximise the exploitation of the nation ’s petroleum resources by Licensees. We believe that we can only achieve this with a mix of companies, from the multinational super -giants to small niche players. But we must be satisfied that no Licensee will block that exploitation because of a lack of technical or financial capacity.

There are additional requirements for operators, which are described elsewhere (see http://www.og.dti.gov.uk/upstream/operations/index.htm).

Financial capacity

DTI must be satisfied that a Licensee (a) is solvent and is likely to remain so; and (b) will not impede future work on a Licence because it cannot afford to pay its share of the bills. The Department ’s Financial Resource Management Directorate (FRM) analyses financial information on behalf of the Oil & Gas Directorate.

It ’s hard to say in general what information will be needed – obviously that depends on the company and the transaction – but the most common requirement has been:

• Two copies of the latest annual report and accounts, and, if appropriate, those of the company ’s ultimate parent.
• Trading Profit and Loss forecasts for the next five years (including projected balance sheets and cash flow statements and any assumptions made in preparing the forecasts), and if appropriate, how any deficit will be met.
• If the company is a subsidiary that will rely on support from its parent, DTI will need a letter of support from the parent stating that it will ensure that adequate financial and technical resources will be made available to the prospective licensee to meet its share of licence obligations and liabilities. In those circumstances, DTI will usually find it more useful to see financial information about the parent. A draft letter is attached at Appendix 5 .

Technical expertise

Non -operators don ’t need to demonstrate as high a level of technical expertise as do operators, but we do expect the Operating Committee to be able to exercise responsible oversight. That means that we wouldn’t allow a significant vote to be exercised by a company without the technical expertise.

Place of business

Each licensee must direct and control its licence operations, and any commercial activities connected to those operations, from a fixed place within the United Kingdom. In the case of a company, it must be centrally managed and controlled (i.e. it must be resident in the UK for tax purposes) or else direct and control the operations and activities through a UK branch.

Failure to satisfy this requirement by any company on a licence constitutes grounds for revocation of the licence. DTI will not issue a new licence to any applicant group that includes a company without such a place of business.

For these purposes, the United Kingdom does not include the Channel Islands or the Isle of Man.

New entrants
Where a company seeking to enter a Licence is new to the UK, DTI will generally need to see the following information:

• Registered name and registration number.
• Place of incorporation and/or its principal place of business.
• Address and telephone number of the registered office.
• Location of central management and control (i.e. (i) representation in the UK which is adequate to manage the interest being acquired with people of sufficient authority here to take operational decisions; and (ii) a base which provides a secure basis for UK taxation purposes).
• Names, usual residential addresses and nationalities of the Board of Directors or other governing body.
• Details of capital held by the company.
• Details of all holdings of 5% or more in the company.
• Details of the corporate structure with a diagram/organogram showing the relationship between the company and its subsidiaries, affiliates and parents.
• Main activities of the company, with particular reference to its oil and gas activities.
• Personnel, including numbers and disciplines (e.g. petroleum engineer, geologist etc.) and any UKCS -relevant experience.
• Plans for future acquisitions and/or participation in future UKCS licensing rounds.

Any queries about these procedures should be addressed to:

Su Bragoli
Tel: 020 7215 5069
Email: susan.bragoli@dti.gsi.gov.uk

Tracy Selby
Tel: 020 7215 5096
Email: tracy.selby@dti.gsi.gov.uk
Fax: 020 7215 5070
DTI Oil and Gas Division Licensing, Exploration and Development

Limited liability partnerships (LLPs)

LLPs are well -known in some countries, notably the USA, but they are new to the UK, having been introduced by the Limited Liability Partnership Act 2000. The Oil & Gas Directorate has no objection in principle to the appearance of LLPs on Petroleum Licences, except that certain parts of the Petroleum Act 1998 appear to rule it out, at least for offshore licences.

The Department is considering ways to remove this restriction in the near future. To discuss LLPs in this or other contexts contact sally.moss@dti.gsi.gov.uk.

JOINT OPERATING AGREEMENTS

Introduction

Creating or amending a Joint Operating Agreement (JOA) commonly entails the apportionment or assignment of at least some of the rights granted by a Petroleum Act licence. As such, it requires the consent of the Secretary of State. These notes describe the procedures to be followed by companies in seeking such consent.

In 1998, DTI introduced a streamlined procedure under which we only need a limited checklist of information. We don ’t usually need a copy of the draft JOA (although we reserve the right to call for one in any particular case).

Appendix 4 is not a form to be filled in, but each application must contain all the information indicated and should be in as near as possible the same format (in particular with the same numbering).

The consent to be granted following this procedure will relate only to the effect of the Model Clauses incorporated into the Petroleum Act licence. Any particular agreement may be subject to other regulatory provisions, and if so it remains the responsibility of the licensee to comply with those provisions. In particular, controls on licence assignments and operator approvals and the Petroleum Act ’s decommissioning provisions are not covered by this procedure.

If we approve the JOA or amendment, the Licensee will be required to provide two copies within two weeks of the date of execution.

Amendments to JOAs

These notes describe procedures that apply equally to the creation of new JOAs and amendments to old ones.

Where a JOA has already been approved under this procedure, and is now to be amended, it can help us to cut processing time if the Licensee makes clear how the checklist information is to be changed.

Any queries about these procedures should be addressed to:

Tracy Selby
Tel: 020 7215 5096
Email: tracy.selby@dti.gsi.gov.uk

Mike Hawkins
Tel: 020 7215 5098
Email: micha el.hawkins@dti.gsi.gov.uk
Fax: 020 7215 5070
DTI Oil and Gas Division Licensing, Exploration and Development

Appendix 1: Checklist of information required in licence assignment application

Appendix 2: Dummy application for approval of a Licence Assignment

Illustrative example: This example shows a dummy submission covering a mythical transaction whereby Streatham Oil is to sell its entire interest in Licence P001 to Tooting Oil.

Appendix 3: Model Deed of Assignment

This is a model of a Deed of Assignment to transfer a licence interest from one existing licensee to another. There is of course scope for a certain level of adjustment to fit individual circumstances; for instance, where there are so many licensees that it would be preferable to list them at a Schedule, or where the assignment is to a company that is not already a licensee.

This Deed of Assignment is made on {date} between: -

1) {Current licensee 1} whose registered office is at {Address 1}; {Current licensee 2} whose registered office is at {Address 2}; …

(all such parties being hereinafter together referred to as the "Assignors");

2) The Assignors other than {Acquiring company} (all such parties being hereinafter together referred to as the "Assignees"); and (3) The Secretary of State for Trade and Industry (hereinafter referred to as the "Secretary of State ").

Whereas: -

A) The Assignors are the holders of United Kingdom Petroleum Production Licence {licence number} (the "Licence ") granted with effect from {date} under the Petroleum (Production) Act 1998.

(B) The Secretary of State on behalf of Her Majesty has in a letter dated {date} given his consent to the execution of this Assignment.

Now this deed witnesses that: -

The Assignors hereby assign unto the Assignees all rights, interest, obligations and liabilities of the Assignors in under pursuant to and in respect of the Licence to hold the same unto the Assignees subject to the performance and observance by the Assignees of the terms and conditions contained in the Licence and on the part of the Licensee therein described to be performed and observed.

The Assignees jointly and severally covenant with and in favour of the Secretary of State and the Assignors (and each of them) that they will perform and observe the terms and conditions contained in the Licence and on the part of the Licensee to be performed and observed.

The construction, validity and performance of this Agreement shall be governed by {English/Scottish} Law and each party hereby submits to the jurisdiction of the {English/Scottish} Courts.

THE COMMON SEAL of
{Licensee 1}
was hereunto affixed
in the presence of:-
Director:                                                         {Director’s signature}
Director/Secretary/Assistant Secretary:             {Second signature}

THE COMMON SEAL of
{Licensee 2}
was hereunto affixed
in the presence of:-

Director:                                                         {Director’s signature}
Director/Secretary/Assistant Secretary:             {Second signature}

Appendix 4: Information required for consideration of new or amended JOAs

Appendix 5: Draft undertaking by parent company

Letter to be written to the Secretary of State by a parent company on its headed paper, signed by a Director or other officer, when the subsidiary lacks the financial capacity to satisfy DTI.

Dear Sir,

Re: [daughter company]

In consideration of the Secretary of State ’s [approval of the assignment of rights in Licence PXXX to daughter company] , we hereby undertake to provide sufficient funds to keep [daughter company] in

existence and to enable it to carry out its obligations in accordance with the terms of the Licence(s), and not to withdraw such funds for a period of four years from the date of this letter.

We also undertake not to dissolve, wind -up or take any other course of action that would prejudice [daughter company] in carrying out its obligations to the Secretary of State under the Licence.

We guarantee to the Secretary of State that, if any monies become repayable by [daughter company] to the Secretary of State under the terms of the Licence and [daughter company] does not repay such

monies to the Secretary of State forthwith on his first demand, we will ourselves pay to the Secretary of State an amount equal to all such sums.

This letter of undertaking is governed by and shall be construed in accordance with the laws of England. We hereby irrevocably submit to the jurisdiction of the English Courts and our address for service in

England is: [address for service].

Yours faithfully

For and on behalf of [parent company]

Company Director/Secretary

[1] Council Directive (94/22/EEC)

[2] The Hydrocarbons Licensing Directive Regulations 1995 (S.I. 1995/1434)

[3] Clause 41(1) of Schedule 10: "The Licensee shall not, except with the consent in writing of the Minister and in accordance with the conditions (if any) of the consent do anything whatsoever whereby, under the law (including the rules of equity) of any part of the United Kingdom or of any other place, any right granted by this licence or derived from a right so granted becomes exercisable by or for the benefit or in accordance with the directions of another person. " Corresponding provisions exist in other Schedules. In addition, Clause 42 gives the Secretary of State certain powers to act when there is a change of control of a licensee, for instance at take -overs and mergers – see below.

 

[1] Where the licence covers an area different from that covered by the JOA, indicate the area it covers, e.g. "Licence P.999 Block 299/19 South". If the JOA replaces an existing JOA, name the JOA being replaced. If the replacement results from the segregation of an existing licence area, describe the segregation and name the JOA that covers the remainder.

[2] The office from which the company will conduct its operations under the licence, not the registered or principal office.

[3] Details of illustrative and other agreements that link the JOA ’s non-licensees to the Licence. If any of the non -licensees named above are not party to an illustrative or other agreement approved by the Secretary of State, they should contact DTI without delay. If a non -licensee named in the table is already a party to an illustrative or any other agreement which entitles it to petroleum or any proceeds of sale of petroleum from the area to which the JOA will relate, and which required the approval in writing of the Secretary of State, state the date on which the Secretary of State's approval was given and the date upon which the agreement was entered into.

[4] Details of any part of the JOA that could affect the entitlement of any licensee to the benefit of any right granted by the licence as set out in the table. Broadly, these rights can include: the benefit of any right granted by the relevant licence in respect of the area; any petroleum won and saved from that area; or any proceeds of sale of that petroleum. It is for the licensee to review the JOA and identify such clauses. Some examples are default provisions (including default under decommissioning security), non -consent and withering interest provisions, sole risk provisions and failure to lift provisions.

[5] The company or companies to manage the operations that are covered by the JOA.

Back | Title | Table of Contents
Appendix 1 | Appendix 2 | Appendix 3 | Appendix 4 | Appendix 5 | Appendix 6 | Appendix 7 | Appendix 8 | Appendix 9
Appendix 10 | Appendix 11 | Appendix 12 | Appendix 13 | Appendix 14 | Appendix 15 | Appendix 16 | Appendix 17
Index Map | Plate 1 | Plate 2W | Plate 2E | Plate 3W | Plate 3E | Plate 4W | Plate 4E | Plate 5 | Plate 6
Plate 7 | Plate 8W | Plate 8E | Plate 9W | Plate 9E | Plate 10W | Plate 10E | Plate 11 | Plate 12 | Legend