The Role of Law in Promoting Investment in the Exploration and Production Industry: Petroleum Licensing in the UK

Abstract

Allowing international oil companies (IOCs) to directly participate in a petroleum exploration and production industry does not axiomatically mean that states with petroleum reserves will absolutely lose its control over their petroleum resources. This is because they can rely on a modernised petroleum regulatory regime to retain their control over petroleum resources. The United Kingdom (UK) has adopted the licensing system as a means to strike a fair balance between participation of IOCs and state control over extraction of petroleum resources by IOCs. Under the UK licensing system, authorisations for the offshore area are done through: the Traditional Licence, the Frontier Licence, the Promote Licence, and the Bespoke Licence. As regards the onshore area, a recent key licence is called the petroleum exploration and development licence in respect of a landward area (PEDL). In essence, all licences establish commercial relationship between the UK Government and oil companies as they authorise licensors to legally explore for and produce petroleum in the designated areas and within limited period of time. In any case, a licensor is bound to pay reasonable amount of remunerations to the UK Government.