The latest licensing round by the UK government energized companies with hopes of making oil and gas discoveries on the UK Continental Shelf.

Activity on the UK Continental Shelf could ramp up after the UK government announced winners of a record-breaking licensing round that offered 167 licenses covering 418 blocks.

Oil and gas investors looking to delve into prospects in the area reached a record high when 224 applications were received for the 27th licensing round, surpassing the previous high by 37, the UK Department of Energy and Climate Change reported. Winners of the latest round touted their awards in a flurry of press releases distributed following the Oct. 25 announcement.

The news came a few weeks after a report by Deloitte’s Petroleum Services Group predicted drilling activity in the UK could eclipse 2010 levels by year-end. Interest has been heavy in central North Sea, Moray Firth basin, and West of Shetland. Forty-six exploration and appraisal wells have been drilled in the first three quarters of this year, a 28% jump from the first three quarters of last year.

“This successful licensing round shows we are taking the right action to offer certainty and confidence to investors,” Energy Minister John Hayes said in a statement. “Our fiscal regime is now encouraging small fields into production, and our licensing regime supports new faces as well the big players to invest. Importantly, we are guaranteeing every last economic drop of oil and gas is produced for the benefit of the UK.

“It is our work with industry that is cultivating this precious resource, making our seas a fertile landscape for investors for many years to come,” he continued.

The UK switched from being an exporter of gas and oil to becoming an importer in 2004 and 2005 as production from fields moved further away from the peak in the late 1990s, according to the US Energy Information Administration. In the years since, production has declined as maturing existing fields outpace discoveries.

However, the record number of applications shows investor confidence is returning and reflects the opportunity that exists, said Mike Tholen, Oil & Gas UK’s economics and commercial director.

“Last year saw the lowest exploration for many decades so we must do everything we can to ensure that the award of licences translates into actual exploration for the billions of barrels of so far undiscovered oil and gas,” Tholen said. “While the measure announced by the government in the summer to improve the economics of small fields should help, it is only one of the factors influencing exploration, and Oil & Gas UK is considering with the Department of Energy and Climate Change, through a joint exploration task group, the levers that could be pulled to boost new drilling.”

The incentives included a field allowance for shallow-water, large, gas developments, a brownfield allowance to spur development in mature fields introduced, and a small-field allowance.

These tax allowance incentives are a key reason for the strong showing by oil and gas companies, according to analytics firm Jefferies International Ltd.

Such allowances “incentivize investment in small, oil, or technically challenging fields,” Jefferies said in a statement. “Prior to [the] announcement, we estimate that only four of the Top 50 planned UKCS developments would not be able to utilize at least one of these allowances. In our view, significant organic growth opportunities are still available in the North Sea for well managed and well funded E&Ps.”

Several companies were offered licenses. These included Atlantic Petroleum, Enegi Oil, EnQuest, Fairfield, Faroe Petroleum, Noreco, Parkmead, Statoil, Trapoil, and Valiant Petroleum.

EnQuest, the largest independent UK producer in the North Sea, added to its assets with 11 licenses, all of which are in the North Sea.

Parkmead was awarded stakes in 25 blocks as part of six licenses. Three are in the central North Sea, which includes eight blocks that contain two Jurassic oil prospects, a large gas prospect, and three oil prospects. One license covers 10 blocks west of Scotland in the frontier Rockall Trough area, where the company said it has three leads. Seven blocks are West of Shetland, containing an oil prospect between the Schiehallion oil field and the Laggan-Tormore gas development as well as two oil leads.

Statoil expanded its portfolio with seven exploration licenses. The company said its most prolific award was for three blocks in the Catcher area on the Western Platform. There, Statoil and Nexen will drill at least three exploration wells in the coming years. The other licenses were for the blocks in the Faroe-Shetland basin.

Enegi Oil received two North Sea license awards, both of which were identified as having reduced risk through previous drilling but were not developed, the company said. One block is located in the southwest margin of East Shetland basin and the other is in the Forties-Montrose High area of the central North Sea and contains the Phoenix discovery. The company hopes to use buoy technology in its recently acquired assets to increase chances of commercializing discoveries.

Fairfield Energy Ltd. was awarded four blocks in the southern North Sea, enabling the company to expand its Dunlin field and broaden into the Carboniferous play in the Southern Gas basin.

Faroe Petroleum received seven exploration licenses. The licenses cover blocks West of Shetland in the Faroe-Shetland basin, central North Sea, Outer Moray Firth, and the northern North Sea Viking Graben.

Trapoil was offered three licenses covering nine blocks, three of which are in the Moray Firth, Witch Ground Graben, west of the Athena field and Bordeaux and Brule discoveries. Five blocks are in the central North Sea close to the Forties field, and the remaining block is in the South Viking Graben.

Noreco landed six licenses – four in the central North Sea and two in the northern North Sea. Atlantic Petroleum was awarded four licenses. Valiant Petroleum landed five licenses, three in the central North Sea, one in the northern North Sea, and one West of Shetlands.

Several other companies also were offered licenses.

Contact the author, Velda Addison, at vaddison@hartenergy.com.