UPDATE 2-Norway ups oil estimate on Arctic riches

Wed Feb 27, 2013 1:28pm EST

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(Adds reactions by oil agency chief, analysts and environmentalist)

* Increases estimate by 15 pct to 18.7 bln boe

* Eyes 1.9 bln boe in offshore border zone with Russia

* Sees more oil potential farther north

* Oilfields straddling Norway-Russia border a political risk

By Gwladys Fouche

OSLO, Feb 27 (Reuters) - Norway has increased its estimate for discoverable offshore oil and gas by 15 percent after mapping out an Arctic zone bordering Russia and the seas off an island near Iceland.

The Nordic nation, which lifted its estimate to 18.7 billion barrels of oil equivalent (boe), is seeing a decline in its current oil output and is looking northwards to rejuvenate it.

On Wednesday it said that about 1.9 billion boe could be exploited in an offshore area the size of Switzerland in the Barents Sea, the vast majority of which is gas, and believes that there is potential for more oil and gas farther north.

The numbers increase by a third the estimated oil and gas discoverable resources in the Norwegian side of the Barents Sea.

"This is very exciting. We are very happy that the results are as promising as they look," Bente Nyland, the head of the Norwegian Petroleum Directorate (NPD), which manages Norway's oil and gas resources, told Reuters.

"This means that we have better possibilities for developing the area with a long-term perspective."

Norway was able to map out the resources in the zone after Oslo and Moscow resolved in 2010 a four-decade-long border dispute.

The authorities also mapped out for the first time the seas around a speck of land called Jan Mayen, situated to the east of Greenland and north of Iceland. There, there could be some 566 million barrels of oil equivalent, said the NPD.

Norway's oil production will fall to a 25-year low in 2013 as fields, particularly in the mature North Sea, become depleted and new developments need more time to come onstream.

Companies that are have already made oil discoveries in the Norwegian Arctic include Statoil, Total and Eni.

One drawback for energy firms is that most of the new resources consist of gas - only 15 percent of the hydrocarbon in the Norwegian part of the border zone is estimated to be oil.

"That makes it much less profitable (for oil firms)," said Oddvar Bjoergan, an analyst at Sparebank 1 Markets.

Another analyst suggested that there was probably more oil on the Russian side of the border but that it was expected the Norwegian side would contain mostly gas.

"These are obviously big reserves," said Thina Saltvedt at Nordea Markets. "It is very positive, not least for the Norwegian oil industry."

Some of the potential oil and gas deposits straddle the maritime border line between Russia and Norway, said the NPD.

"There is an obvious political risk there," said Saltvedt. "What could happen is that these fields will be left alone for a longer time while oil firms begin with the other fields."

The risk could be that an oil company working on one side of the border "empties" a reservoir from oil and gas that lie under the other nation's territory.

Similar issues have been resolved in the past, however. In the North Sea, Britain and Norway have agreed how much resources they can take out from fields that lie on either side of their maritime border.

In addition, Russian oil companies need the technology and experience to drill in challenging offshore areas, something that Norwegian state-controlled firm Statoil already has.

Nyland at the oil directorate did not expect problems regarding that question. "The agreement concluded three years ago between Norway and Russia covers that issue," she said.

COULD BE OPENED IN TWO YEARS

Nyland added that oil licenses in the new areas could be offered to oil firms in two years' time at the earliest.

At least one green group said the areas should not be opened to oil drilling as Jan Mayen is a protected area for its sea birds and marine life while the border zone is home to key fisheries, such as cod and herring.

"These areas are very vulnerable and dealing with an oil spill would be very challenging," said Arild Skedsmo, conservation director at WWF Norway.

The NPD expected even more oil to be found farther north in the border zone, which it would continue to map out this summer, after conducting some surveys last year.

"The resource numbers from this area will increase further the estimate for undiscovered resources," said the NPD.

Nyland did not have estimates for how much more oil and gas there could be in that particular area.

It is not expected this area will be opened any time soon, as it lies within the reach of polar sea ice. Norway has said it would not drill where there is sea ice. (Additional reporting by Joachim Dagenborg, editing by William Hardy)

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