Faroe gives up on Icelandic oil exploration next door to CNOOC

Faroe Petroleum, a sixth of which is owned by Korea’s KNOC through subsidiary Dana Petroleum, have handed back the license they had been awarded to explore for oil and gas under the seabed in the Icelandic sector of the Jan Mayen area, Iceland’s energy authority informs.

Íslenskt kolvetni or ARC, Faroe’s minority partner in the license, explain their exit from Icelandic oil exploration by pointing to the disappointing results of preliminary studies, that indicate that neither seismic data acquisition nor any other exploration method short of just drilling will help ascertain whether there is any oil down there. As I said in a background article a year ago, estimates about reserves in the Jan Mayen area are loaded with uncertainty due to the presence of a thick layer of basaltic lava. Ketill Sigurjónsson from consulting firm Askja is calling this a “prophecy that regrettably came true”: it was clear from the beginning that you had to drill through all that basalt to find out if there’s anything worth the trouble under it, and that all that drilling would be rather onerous.

The elephant in the room is of course CNOOC (中海油), the holder of another of the three licenses off Iceland. Their licensed area, that’s just next to the one Faroe have just given up on, would seem to be just as tricky to explore. They seem more upbeat though: last October they met with their Icelandic license partner, Eykon Energy, who told Icelandic TV data acquisition in their patch would start next year. Eykon officials have a record of optimism, to put it mildly, about the area’s potential.

Jan Mayen oil: Norway to partner with CNOOC off Iceland

Norway’s state-owned Petoro will take up a 25% stake in an E&P license offshore Iceland, applied for by CNOOC and its local partner, one-year-old Eykon Energy. The blocks are located in the Dreki area, the Icelandic sector of the waters south of the Norwegian island of Jan Mayen. The Norwegians are entitled to a stake in any hydrocarbon exploration projects in the Icelandic sector, a right conferred them by a binational treaty that settled a territorial dispute in 1981. Petoro already has a share of the two Dreki licenses awarded earlier this year.

Participating in the first four-year exploration phase will cost Norway just over $4m, the oil ministry has informed the Storting, that must yet approve the decision to take part in the license.

Oil-drilling activities in the Norwegian Jan Mayen area have been put on hold by the new Conservative government as a concession to minority parties, a decision that could “shatter Iceland’s oil dream”: exploration in the Norwegian sector would have helped ascertain the prospects in the whole Jan Mayen region. While recent estimates have put recoverable reserves at above half a billion BOE (for the Norwegian part), much of the area is covered by a thick layer of basaltic lava, which makes those figures uncertain and adds to the exploration costs. Should one discovery be made, the estimates would rise significantly, with potential consequences for geologically similar areas offshore East Greenland. That could attract some of the oil majors, which so far have shown little interest in the area. The Icelanders would surely welcome an oil boom; the president has even talked about setting up a wealth fund like the Norwegians. CNOOC, rather new to offshore drilling, could find themselves as the largest company with an interest in Jan Mayen.

Also present in the Dreki area are Ithaca Energy and Faroe Petroleum. Korean major KCNA owns 23% of the latter through Dana Petroleum, an asset they had been rumoured to want to get rid of, but which now they seem quite happy to keep.

More about Chinese interest in Icelandic oil in my article on the topic.