OT00040 - The taxation of the UK oil industry: an overview: legal overview 1918 to Petroleum Act 1998

The foundations of the current fiscal regime were laid almost 100 years ago, since when successive Acts and agreements have opened the way to the exploitation of the UK’s oil and gas reserves.

Petroleum (Production) Act 1918

During the First World War, the Government began to encourage companies to drill onshore for oil. The Petroleum (Production) Act 1918 was thus enacted to confer on the Crown the right to control exploration and production in the UK and to grant licenses for that purpose. Interest diminished after the war, but revived in the 1930s.

Petroleum (Production) Act 1934

The Petroleum (Production) Act 1934 repealed the 1918 Act while reaffirming that legal title to petroleum existing in its natural state in Great Britain was vested in the Crown. The Act provided for the Government to license other persons to search for and win oil. Regulations were subsequently issued under this Act in respect of licences for onshore areas; it was not suspected that significant hydrocarbon deposits might be found offshore.

United Nations Conference on the Law of the Sea 1958

A United Nations Law of the Sea Conference met in 1958 in Geneva to consider the law of the sea as a whole. The resulting Geneva Continental Shelf Convention was signed by the United Kingdom in September 1958. One result was that countries with coastlines were given rights to explore and produce the natural resources in the continental shelf to a distance of 200 miles from shore. Provision was made for agreement of a median line where the continental shelf continued unbroken from one country to another country.

Continental Shelf Act 1964

The Continental Shelf Act 1964 vested rights over the UK continental shelf in the Crown, and applied the licensing provisions of the 1934 Act to the UK continental shelf. The Act also led to the division of the UK continental shelf into quadrants and blocks and, in 1966, regulations were made which consolidated the licensing arrangements for both landward and seaward areas.

Agreement with Norway 1965

In 1965 the UK - Norway Determination Agreement was entered into. In particular, Article I provides that, subject to minor divergences for administrative convenience, the median line would be a line “every point of which is equidistant from the nearest points of the baselines from which the territorial sea of each country is measured”. Article IV then provides that, if any single geological petroleum structure or petroleum field extends across the median line, and the part on one side of the line is exploitable from the other side of the median line, the governments of Norway and the UK, in consultation with the licensees involved, are required to seek to reach agreement as to the manner of exploitation and the apportionment of the benefits.

Petroleum Act 1998

This consolidated a number of the earlier enactments including, in particular, the Petroleum and Submarine Pipe-lines Act 1975 and the Petroleum Act 1987. The Petroleum Act 1998 contains the legislation that currently determines matters such as the vesting of ownership of oil and gas within Great Britain and its territorial sea in the Crown, the granting of oil licences and rules relating to submarine pipelines and the decommissioning of offshore installations.