One of the last great frontiers for oil and gas exploration, the Arctic has been exciting the energy industry for a number of years. Several major oil firms have expressed interest in exploring deep into Arctic territories, and governments of countries such as the United States, Russia, Canada and Norway have been preparing for this eventuality.
This year will see many oil and gas companies take a step closer to exploring the Arctic with several drills scheduled to take place in the Barents Sea – a marginal sea of the Arctic Ocean that lies off the coasts of northern Norway and northwest Russia.
For example, Norwegian major Statoil plans to follow up its Skrugard and Havis discoveries of March 2011 and January 2012 with a four-well drilling campaign that it aims to complete by late spring/early summer 2013. In total, Statoil wants to drill nine wells in the Barents Sea during 2013.
The combined discoveries of Skurgard and Havis have been estimated at between 400 million and 600 million barrels of oil equivalent. Statoil’s further exploration of the PL 532 license where the discoveries were made – as well as in the nearby PL 608 license – could lead to the Barents Sea being proven as another major hydrocarbon basin for Norway.
Faroe Petroleum is a junior oil and gas explorer long involved in exploration operations in the North Sea and Norwegian Sea, as well as around the Faroe Islands, but which more recently acquired prospects in the Barents Sea thanks to license partnerships with BG Group, Repsol and German oil firm Wintershall.
In a recent interview with Rigzone, Faroe Chief Executive Graham Stewart explained what makes the Barents Sea an enticing region for explorers :
"What is exciting about it, I suppose, is the prospect sizes : the fact that there have been some good discoveries in the past 18 months, mostly by Statoil and also by Total. Strategically, Norway is regarded on the world exploration map as extremely significant and, with the more recent very-large discoveries that have been made up there ; people are expecting great things to come."
As well as the sizable Skrugard and Havis discoveries, Eni Norge – a subsidiary of Italian oil major Eni – recently completed an appraisal well at its 174 million-barrel Goliat discovery. Completed in December, this appraisal well brought Eni closer to its goal of bringing Goliat into production in the summer of 2014.
Apart from the obvious exploration opportunities, Stewart explained that the Norwegian zone of the Barents Sea offers additional benefits for oil and gas companies over rival frontier plays.
"You’ve got a politically stable regime, albeit quite high tax… And yet they have a tax regime that encourages exploration very actively through the state participation in exploration wells – at least financial participation through the use of a tax rebate," he pointed out.
Indeed, exploration incentives introduced by Norway in 1999 have been responsible – at least in part – for a doubling of the number of explorers drilling on the Norwegian Continental Shelf, according to a research report from Wood Mackenzie in August 2012. A Reversal of Fortunes for Faroe ?
For Faroe, the firm’s 12.5-percent participation in the Repsol-operated Darwin prospect offers the soonest opportunity for it to benefit from Barents Sea hydrocarbons.
Darwin – which is located some 37-to-50 miles to the southwest of the Skugard and Havis oil discoveries on Norwegian production license 531– potentially holds one billion barrels, according to estimates.