Petroleum licensing

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Petroleum is most often associated with its liquid form, crude oil, which is made up of hydrocarbons and which can be extracted from reservoirs via drilling. However, in technical terms, petroleum also comes in the form of natural gas, a hydrocarbon gas made predominantly of methane. Natural gas can also be extracted by drilling. When found in coal beds, coal-bed methane can be extracted by drilling into the coal seam.

For the purposes of petroleum licensing, the Petroleum Act 1998 defines petroleum as including any mineral oil or relative hydrocarbon and natural gas existing in its natural condition in strata (a single layer of sedimentary rock). It excludes coal, bituminous shales and other stratified (layered) deposits from which oil can be extracted by destructive distillation.

UK petroleum belongs to the monarch, and in order to search for, bore for, or get it a licence must be granted.

The Wales Act 2017 amended Part 1 of the Petroleum Act 1998. It allows the Welsh Ministers to grant petroleum licences in relation to the Welsh onshore area. The Welsh onshore area is the area of Welsh territorial sea which extends to the baseline. The Oil and Gas Authority (OGA) remains responsible for petroleum licensing in Welsh waters.

For the purposes of the Petroleum Act 1998, the Welsh Ministers may prescribe the requirements for a licence application and the model clauses of a licence. Section 188 of the Energy Act 2004 has also been amended to allow the Welsh Ministers to impose charges to fund the exercise of their petroleum licensing functions (see the Petroleum Licensing (Charges) (Wales) Regulations 2018).

Under the Petroleum Act 1998, the Welsh Ministers may not issue a well consent for a well in the Welsh onshore area, unless a condition is imposed which:

  • prevents associated hydraulic fracturing (“fracking”) at a depth of less than 1,000 metres; and
  • if at a depth of more than 1,000 metres, permitting it only with the Welsh Ministers’ consent. Fracking is a well-stimulation technique used to access shale; a type of petroleum (i.e. oil or gas) which is difficult to access by conventional methods as it is trapped in non-porous rock. It involves the high pressure injection of water (sometimes containing sand to keep the fracture open) into a drilled hole. This creates cracks in the rock, allowing natural gases and/or oil to flow more freely. For the purposes of the Petroleum Act 1998 fracking involves the injection of more than 1,000 cubic metres of fluid at each stage, or more than 10,000 cubic metres of fluid in total.