Appendix A: Review of Resource Licensing Regimes
A.1 Existing UK licensing regimes which are currently applicable to the commercial exploitation of underground energy sources
A.1.1 Petroleum Licensing in the UK (including 'unconventional' gas resources)
The Department of Energy and Climate Change ( DECC) is the government department responsible for energy and issuing Petroleum Licences. The Secretary of State has discretion in the granting of licences, which is exercised to ensure maximum exploitation of national resource. DECC can grant licences that confer exclusive rights to "search and bore for and get" 'petroleum'. Each of these confers such rights over a limited area and for a limited period.
Most licences follow a standard format but DECC is flexible in this regard and will consider adapting new licences to suit special scenarios.
A.1.2 Types of Petroleum Licence
Modern licence types are as follows and Table A.1 gives an overview of the features of each:
- Traditional licence
- Promote licence
- Six-year frontier licence
- Nine-year frontier licence
- Petroleum Exploration and Development Licence ( PEDL)
- Supplementary Seismic Survey Licences
- Seaward (Offshore) Exploration Licences
Table A.1 - Types of Petroleum Licence (after DECC)
|Type of licence|
|Seaward (Offshore) Production||Seaward (Offshore) Exploration||Landward (Onshore) Production|
|Terms||Life cycle of field||Traditional Licence / Seaward Production Licence||Promote Licence||Six-year Frontier Licence||Nine-year Frontier Licence||Seaward Exploration Licence||Petroleum Exploration and Development ( PEDL)||Supplementary Seismic Survey Licence|
|Initial||Exploration||4yrs||4yrs||6yrs||9yrs||For a company that does not need rights to drill or produce. Particularly aimed at seismic contractors who wish to gather data to sell rather than exploit geological resources themselves.||6yrs||For operators of Landward Production Licence who want to shoot a seismic survey right up to the boundary of their licensed area. Lasts for one year and covers a kilometre-wide strip adjacent to the existing Production Licence|
|Second||Appraisal and Development||4yrs||4yrs||6yrs||6yrs||5yrs|
|Relinquishment details||Mandatory relinquishment at end of initial term 50%||Mandatory relinquishment at end of initial term 50%||Special mandatory relinquishment of 75% after 3 years with a mandatory relinquishment at the end of the initial term of 50% of the remainder||Special mandatory relinquishment of 75% after six years with a mandatory relinquishment at the end of the initial term of 50% of the remainder||Mandatory relinquishment at end of initial term 50%|
|Requirement for proof of technical/ environmental competence||Before offer of licence is made||
||Before offer of licence is made|
||Cheaper than a Production Licence at flat rate of £2,000/yr||Full name of the Landward Production Licence|
All modern production licences run for the following three successive periods (terms):
- Initial term - may continue into a second term if the agreed work programme has been completed and a minimum amount of acreage has been relinquished;
- Second term - may continue into a third term if a development plan has been approved and all acreage outside the development has been relinquished; and
- Third term - runs for an extended period to allow production
The terms are of different durations, in accordance with the licence type, and there is an escalating annual rental.
The PEDL (Petroleum Exploration & Development Licence) for onshore licensing was introduced in 1996 to reduce bureaucratic burden of issuing a series of licences. Prior to this, the following licensing regimes were used:
Table A.2 Older types of onshore licence (pre-1996)
|Time||Type of onshore licence|
|Pre 1984||Exploration Licence Production Licence|
|1986 - 1992||Exploration Licence ( EXL) Appraisal Licence ( AL) Development Licence ( DL) Production Licence ( PL)|
A.1.3 Features of Petroleum Licensing in the UK
Each licence carries an annual charge, called a rental. Rentals are due each year on the licence anniversary (except pre-20th Round Seaward Production Licences, which were only due in their initial year). Rentals are charged at an escalating rate on each square kilometre the licence covers at that date.
The rentals have dual purpose; to encourage licensees to surrender acreage they don't want to exploit, and to focus licensees on acreage they decide to exploit.
Seaward (offshore) Production Licences, and Petroleum Exploration and Development Licences, are valid for a sequence of periods, known as 'terms'. These are designed to comprise the typical life cycle of a field: exploration, appraisal, production. Each licence will expire automatically at the end of each term, unless the licensee has sufficiently progressed to warrant a chance to move into the next term.
Licensees are entitled to 'determine' (i.e. surrender) a licence, or part of the acreage covered by it, at any time (unless the licence is still in its initial term and the work programme is incomplete). DECC positively encourages the surrender of acreage if the licensee does not intend to work it, and a minimum relinquishment of acreage at the end of the initial term is a condition of most licences.
Many licences cover more than one block. 'Multiblock licences' are offshore licences for which the blocks have widely divergent licence groups of companies and are commonly applied to blocks that are scattered geographically.
Landward (onshore) licences and landowners
The Secretary of State issues landward production licences (Petroleum Exploration and Development Licences) under powers granted by the Petroleum Act 1998. They confer the right to search for, bore for and get hydrocarbons, but do not confer any exemption from other legal/regulatory requirements such as:
- any need to gain access rights from landowners
- health and safety regulations
- planning permission from relevant local authorities.
In particular, nothing in part I of the Act confers, or enables the Secretary of State to confer, any right to enter on or interfere with land (see section 9(2) of the Act. However, it should also be noted that section 7(1) of the Act applies the Mines (Working Facilities and Support) Act 1966 in England, Wales and Scotland for the purpose of enabling a licensee to acquire such ancillary rights as may be required for the exercise of the rights granted by the licence.
DECC issues licences through competitive licensing rounds. It believes this method yields better quality bids than other methods. Unlike auctions, for instance, licensing rounds do not divert significant sums of money away from exploration work and they give a much better expectation that a licence will be awarded to the bid that promises to optimise exploitation of the UK's petroleum resources.
Onshore and offshore licensing rounds generally take place every year. Out-of-round applications are available in exceptional circumstances.
Other details of licensing in the UK are available at DECC's website:
A.2 Other Mineral Licences In Great Britain
A.2.1 The Coal Authority
The Coal Authority owns, on behalf of the State, the vast majority of the coal in Great Britain, as well as former coal mines. The Coal Authority is a NDPB (non-departmental public body) sponsored by DECC (Department for Energy and Climate Change), and has specific statutory responsibilities associated with licensing coal mining operations and issues related to past coal mining activities in Great Britain.
Under the Coal Industry Act 1994, the Coal Authority has obligations to consider the implications on existing and future coal mining and the potential for coal bed methane exploitation of any activity which intersects, disturbs or enters any of the Coal Authority's coal interests. Such activities require the prior written authorisation of the Coal Authority in the form of either a Licence, Agreement, or Permit, depending upon the activity to be carried out.
The Coal Authority has introduced a form specific to geothermal development projects that extract heat from minewaters, then a Minewater Heat Recovery Access Agreement is required (see below).
A.2.2 Minewater Heat Recovery Access Agreement ( MHRAA)
The Coal Authority grants two types of Minewater Heat Recovery Access Agreement, namely:
- an Access Agreement relating to Minewater Heat Recovery at a single site, with a maximum agreement area of 500 hectares, where all other rights and permissions are in place or applied for; or
- an Access Agreement relating to a larger area, with a maximum size of 2,000 hectares, where the intention is to evaluate the potential for project(s). This type of "blanket" Access Agreement covers the overall area with subsequent Supplemental Agreements required for each borehole site within this overall area.
The MHRAA does not absolve the applicant from obtaining all other necessary rights, including surface access rights, permissions and consents.
The MHRAA covers both open and closed-loop geothermal systems.
Details of the MHRAA can be found on DECC's website:
It is noted that the MHRAA is an access agreement granted by the Coal Authority, largely to protect its assets, and it does not specifically grant a right or licence to the geothermal heat energy itself. This is presumably because the ownership of the heat is legally undefined (see Section 3 - The Ownership of Geothermal Resources in Scotland).
A.3 Existing Licensing Systems in other Countries
Various licensing systems are already in place in different countries and states around the world. The development of these systems has generally been based on the following:
- A legal definition of geothermal energy; and
- Amendment of existing legislation for minerals or water resources to enable licensing; or
- Creation of specific legislation for geothermal energy to enable licensing.
Holroyd and Dagg (2011) carried out an inter-jurisdictional review of geothermal energy legislation and policy for the Government of the Northwest Territories of Canada ( NWT) in support of developing a regulatory framework for geothermal energy in the NWT. This review provides a useful summary of some of the legal frameworks that have been put in place in different countries, namely the United States (federal land plus the states of Nevada and California), Canada (province of British Columbia), Australia, New Zealand, Iceland, Italy and Germany. The following sub-sections contain information summarised from Holroyd and Dagg (2011).
The Irish Government has also developed, and is proposing to introduce, specific legislative proposals in respect of geothermal energy. Based on a parliamentary question put to the Irish Minister for Communications, Energy and Natural Resources in October 2012, it is expected that the Geothermal Energy Development Bill will be published in 2013, following publication of the Minerals Development Bill, on which certain aspects of it are based.
A.4 Legal Definitions of Geothermal Resources
Table A.3 summarises the various legal definitions used in the jurisdictions reviewed by Holroyd and Dagg (2011), plus the proposed Irish system, for defining geothermal resource and licensing arrangements.
Table A.3 Legal Definitions for Geothermal Resources in Various Jurisdictions (after Holroyd and Dagg, 2011).
|Country||Definition of geothermal resource||Key Features of Licensing and Leasing Arrangements|
|USA (Federal Lands)||The Geothermal Steam Act of 1970 defines geothermal resources as: "all products of geothermal processes, embracing indigenous steam, hot water and hot brines; (ii) steam and other gases, hot water and hot brines resulting from water, gas, or other fluids artificially introduced into geothermal formations; (iii) heat or other associated energy found in geothermal formations; and (iv) any byproduct derived from them".||
|California, USA||The California Public Resource Code defines geothermal resources as "the natural heat of the earth, the energy, in whatever form, below the surface of the earth present in, resulting from, or created by, or which may be extracted from, such natural heat, and all minerals in solution or other products obtained from naturally heated fluids, brines, associated gases, and steam, in whatever form, found below the surface of the earth, but excluding oil, hydrocarbon gas or other hydrocarbon substances."||
|Nevada, USA||The Nevada Revised Statutes define geothermal resources as "the natural heat of the earth and the energy associated with that natural heat, pressure and all dissolved or entrained minerals that may be obtained from the medium used to transfer that heat, but excluding hydrocarbons and helium.||
|British Columbia, Canada||The Geothermal Resources Act of 1982 defines a geothermal resource as "the earth's natural heat and all substances that get added value from it, including steam, water, water vapour and any dissolved substances." Surface hot springs that have a temperature greater than 80°C at the surface are considered a geothermal resource, but waters less than 80°C are excluded.||
|Australia (general)||Definitions depend on the state or territory within Australia. Some states such as New South Wales, and Tasmania define geothermal resources as a mineral. Other states have specific legislation for geothermal resources, such as Victoria and Queensland where geothermal energy is "heat energy derived from the earth's natural (subsurface heat).||Geothermal legislation and regulation is unique to each of the states and territories in Australia. The legislation in these six states is described below.|
|New South Wales, Australia||
|South Australia, Australia||
|Western Australia, Australia||
|New Zealand||The Resource Management Act (1991) defines geothermal energy as "energy derived or derivable from and produced within the earth by natural heat phenomena; and includes all geothermal water." Geothermal water is defined as "water heated within the earth by natural phenomena to a temperature of 30 degrees Celsius or more; and includes all steam, water, and water vapour, and every mixture of all or any of them that has been heated by natural phenomena."||
|Italy||A new law, Legislative Decree, was approved on February 15, 2010, providing rules for exploration and production of geothermal resources in Italy. The general provisions of that law are as follows. 1. Exploration and production of geothermal resources for energy purposes made in Italy, its territorial seas, and on its continental shelves, are considered in the public (national community) interest (importance) and public (national community) utility (usefulness). 2. In accordance with the effects of this law, geothermal resources are defined as being in one of three categories: a. high-enthalpy, characterized by fluid temperatures above 150°C; b. medium-enthalpy, characterized by fluid temperatures between 90°C and 150°C; c. low-enthalpy, with fluid temperatures < 90°C. 3. High-enthalpy geothermal resources, or that which are economically usable for the construction of a geothermal project ensuring certified power output of at least 20MW, are of national interest, as well as those geothermal resources found in marine areas which are economically usable. 4. Medium- and low-enthalpy geothermal resources, or that which is economically usable for the construction of a geothermal project of power less than 20 MW geothermal fluid, are of local interest.||
|Ireland (proposed)||Geothermal Energy Development Bill will be published in 2013, following publication of the Minerals Development Bill, on which certain aspects of it are based.||
|Iceland||Iceland governs geothermal as a "resource" along with all other subsurface resources. A resource is defined as "any element, compound and energy that can be extracted from the Earth, whether in solid, liquid or gaseous form, regardless of the temperature at which they may be found.||
|Germany||Geothermal resources are considered a mineral under the federal mining laws. Geothermal heat and geothermal fluids are included under this law.||