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.