China’s CNOOC starts exploring for Icelandic oil

Surface exploration began last month in the Dreki area off Iceland, in an area licensed to China’s state owned oil company CNOOC (中海油) together with two minority partners, Norway’s Petoro and local company Eykon Energy. Measurements were conducted on the Oceanic Challenger, that operated from Reyðarfjörður with a crew of 60, and a support vessel. (News I reported in June indicated the operation would be exempt from port fees.) This first stage of exploration was expected to last for around three weeks (at any rate the ship is already in Dunkirk).

Eykon chairman Heiðar Már Guðjónsson says the plan is to conduct exploration drilling in three phases, in 2020, 2022 and 2023. The area is quite expensive to explore, and estimates about possible hydrocarbon reserves tend to be rather speculative due to the presence of a thick layer of basaltic lava that makes ascertaining the presence of any oil at all rather tricky without boring actual holes through it. Heyðar Már and others from Eykon have attracted a lot of attention in the past with estimates in the high gazillions, but hardly anyone else is half that upbeat. No oil majors showed interest in Dreki licenses when they were for grabs, and the holders of one of the three awarded licenses, Faroe Petroleum, actually gave up on it last year. CNOOC, on the other hand, are enthusiastic enough to invest in exploration, while keeping remarkably quiet about it (no information on Icelandic oil has shown up on Chinese media).

port chosen for CNOOC Iceland oil exploration

Eykon Energy, CNOOC’s local partner for their oil and gas license off Iceland, are being offered access to the Mjóeyri harbour, with a fee exemption during the exploration stages of the project, says the mayor of Fjarðabyggð municipality (Vísir). The announcement came after negotiations between Eykon and the municipality, which haven’t yet resulted in a formal agreement.

Mjóeyri harbour (Mjóeyrarhöfn), on the island’s eastern shore, was built for the Alcoa aluminium plant in nearby Reyðarfjörður.

Here’s more on Iceland oil.

not just CNOOC to explore for oil off Iceland this year

Ithaca Energy, the operator for one of the two offshore oil and gas licenses in the Icelandic Jan Mayen area (Drekasvæðið), are planning to start 2D measurements this year, reports Vísir. Ithaca are thus joining China’s state-owned CNOOC (中海油), the operator of the other license and by far the biggest company with an interest in Icelandic oil, who have similar plans according to an announcement from last year.

CNOOC’s local partner, Eykon Energy, said in January that they’re optimistic about the project and undeterred by low oil prices. Faroe Petroleum, where Korea’s KNOC has a stake, don’t share such optimism and relinquished their own Jan Mayen license in December after preliminary studies yielded disappointing results.

The problem with any potential hydrocarbon reserves in the area is that they mostly lie under a thick layer of basaltic lava. Surface measurements like the ones planned for this year might not be enough to ascertain if there’s any oil worth extracting down there, making it hard to settle down the question without rather costly deepwater drilling. Those were precisely the reasons why the Faroe-led group gave up on the area, and Ithaca’s reported will to spend money on exploration counts as the first sign of optimism not coming from the CNOOC-Eykon partnership themselves (people with Eykon have a long record of enthusiasm about the area’s prospects).

More about Icelandic oil in my longish CNOOC backgrounder and here and there in shorter posts.

oil at $60 good enough for us: CNOOC’s partner in Iceland

Gunnlaugur Jónsson from Eykon, CNOOC’s (中海油) local partner for their license in the Icelandic sector of the Jan Mayen area, tells TV station Stöð 2 that they’re undeterred by falling oil prices. Actually, says Gunnlaugur, the current price level makes the 2d measurements they plan to carry out this year even cheaper. If they find large enough deposits, he adds, they might be able to make a profit with oil as cheap as $60 per barrel (Vísir).

Such optimism about Arctic oil is not terribly common these days. CNOOC’s neighbour offshore Iceland, Faroe petroleum, relinquished their license last December after preliminary studies yielded disappointing results.

beware of the littoral-minded: China can’t be ‘just a passive onlooker’ of North Pole claims

So far there hasn’t been much of a Chinese media reaction to Denmark’s claim over a large swath of the Arctic, North Pole and all, as their territorial waters, something that has been called “the Kingdom’s greatest expansion since the Kalmar Union“. An article from last week, i.e. before the Danish official claim at the UN, in the ‘military affairs’ section of Sina does talk more generally about several countries “wrestling for control of the Arctic”, something China can’t afford to “just observe“.

Guo Peiqing 郭培清, a professor at the Ocean University of China (海大) in Qingdao and a well-known authority on Arctic issues, is quoted as emphasising the importance of the Arctic, both for its natural resources and as a shipping shortcut, from the point of view of the large resource needs imposed by China’s “peaceful rise” and long-term development. China can’t just passively watch while other countries scramble for the Arctic, the article adds, and must plan ahead and act to protect its legitimate interests in the region.

None of these views is new, and specifically people like professor Guo have consistently warned about the Arctic littoral states trying to keep the Arctic all for themselves.

As for specific coverage of the Danish claim, all Chinese media have had to offer thus far is short news sources to either the Financial Times or ‘Russian media’, such as this quickie making the rounds on Renminwang and elsewhere, which mirrors rather closely a TASS story and says right from the title that Denmark is claiming ’20 times their continental landmass’. Whatever the merits od the Danish claim, that number is a bit disingenuous since the roughly 900k km2 the Danes are asking for amount to less than half the area of Greenland, or, if you will, a meagre 25% of China’s own claim in warmer latitudes, also known as the nine-dash line or the Cow’s Tongue.

The TASS story those Chinese news items are drawing from appears to be a short English-language article that doesn’t quite shine for the editing standards you’d expect when discussing a high-stakes geopolitical intrigue: the article manages to refer to Denmark’s claim as “the Dutch application”. Now the Netherlands’ northernmost point does entitle them to be addressed as a ‘near-Arctic state’ (近北极国家)by Chinese standards, or they might for that matter even pull a Senkaku and ask for, say, Jan Mayen based on the exploits of the Noordsche Compagnie, but to my knowledge so far they’re staying put and leaving the Arctic alone. To be fair to the TASS editors, датский ‘Danish’ does sound a bit like ‘Dutch’, although according to Vasmer the words seem to be unrelated.

But the Russians have actually provided a more official reaction to the Danish ambitions, through natural resources minister Sergey Donskoy who said that the UN’s commission the Danes are claiming the North Pole at has actually no authority to give it to them. Mr Donskoy’s surname means ‘of the (river) Don Дон‘, just a soft sign away from Don’ Донь which was an old Russian name for Denmark.

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.

Norway oil piques CNOOC’s curiosity

CNOOC’s subsidiary Nexen has inquired about the price of seismic 2D data for Barents sea sectors to be licensed in 2016, says Bloomberg. The data are being sold by the Norwegian Petroleum Directorate.

Norwegian newspaper Dagens Næringsliv already calls this China ‘hunting for Norwegian oil’.

Another CNOOC subsidiary, COSL or China Oilfield Services (中海油服), has been operating rigs in Norway for quite some time. A $150m lawsuit their brought against Statoil, which I wrote about one year ago, was settled last June for less than half that money.

Meanwhile in Iceland, CNOOC’s partner Eykon are saying they might start acquiring seismic data next summer in the sector they own a license for, in the Jan Mayen area.

Last year I wrote a background article on CNOOC in Iceland and elsewhere. By not reading it, you’re missing out on plenty of CNOOC trivia you could enliven dinner parties with this weekend.