$70 a barrel keeps Faroes dreaming of oil wealth
TORSHAVN, Faroe Islands (Reuters) - The scene looks nothing like a Middle East capital: on the outskirts of this sleepy fishing town of 15,000, men mow grass roofs on their houses while sheep roam freely on steep, rocky hills.
Yet Torshavn, the capital of the Faroe Islands, dreams of becoming the Kuwait City of the North -- enjoying oil riches that would free these wind-swept North Atlantic volcanic rocks from depending on fish, sheep and ruler Denmark for survival.
Energy companies are the only foreigners who spend big money here, shelling out more than $50 million per well to seek oil and gas under the hard basalt sea floor. With oil prices around $70 per barrel, the expense is justifiable to shareholders, as long as there is oil to be found.
However, several dry wells have tempered oil companies' initial enthusiasm for exploration here and experts say 2007 could make or break the Faroes' potential oil fortune.
"An oil find would have a huge impact on Faroese society," said Wilhelm Petersen, chief executive of Atlantic Petroleum, a small Faroese firm involved in several exploration projects with major oil companies here.
An autonomous Danish territory, home to about 50,000 people and 75,000 sheep, the Faroe Islands lie between Scotland and Iceland. Denmark handles their defense and foreign policy and pays a yearly grant that helps keep the independence movement muffled.
In 2000, the first round of exploration licensing aroused great expectations as 12 oil companies including Shell, BP and Chevron snapped up the rights to drill in waters around the Faroes.
But only one of five wells drilled so far has found oil, and even that discovery was not commercial.
"In hindsight you must say expectations were far too high," said Sigurd i Jakupsstovu, the head of the Faroese Earth and Energy Directorate. "We had fierce competition for getting the acreage in the first licensing round and it spurred a very high level of hope, which frankly was a little bit unrealistic."
SUBSIDIES
The Danish grant amounts to 774 million Danish crowns ($141 million) this year, or nearly 7 percent of the Faroes' gross domestic product.
Danish subsidies have helped pay for two underwater tunnels, which together with several bridges connect six of the 18 islands. Denmark also educates young Faroese for free in its public universities.
A planned referendum on independence was shelved in 2001 after Denmark said it would halt aid within four years if voters favored it, while a 2004 vote ended in a draw.
"I'd like for us to be independent, but I don't think we can afford it now," said Jakup Zachariassen, a music producer from Torshavn. "More people would support independence if we found oil, because then we wouldn't need the Danish money."
But the pace of oil exploration has slowed down, and this year BP will drill only the second well the Faroes have seen in four years. The results of that and the level of interest companies show in a third licensing round this autumn should be a good indicator of the future of oil exploration in the Faroes. Continued...
