The Arctic - The Final Frontier For Oil and Gas
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The Arctic may truly represent the last frontier for oil and gas development and the potential resources present here are attracting a host of oil and gas companies eager to exploit this area. The Arctic also presents many challenges for operators to deal with while exploring and developing oil and gas properties.
Statoil (NYSE: STO) will increase its activity in the Arctic and plans to drill nine wells in 2013 in the Norwegian section of the Barents Sea. The company’s first targeted area will be near the Skrugard prospect, where Statoil reported a successful exploration well in April 2011. The company plans to drill and complete four wells in this area by the middle of 2013.
Statoil already has found substantial resources here and estimates that the Skrugard and another nearby discovery hold from 400 million to 600 million barrels of recoverable oil. Eni (NYSE: E) is also involved at the Skrugard prospect and owns a 30% share of this prospect.
Statoil then plans to drill between two and three wells in the Hoop frontier exploration area, a more prospective region in the Barents Sea. These would also be the most northernmost wells drilled in Norway to date. The balance of the wells will be drilled in the Hammerfest Basin, where Statoil has existing production from the Snohvit field.
Statoil also has signed a strategic cooperation agreement with Rosneft, the state owned Russian oil company, to explore for oil and gas resources in the Barents Sea and other areas. One prospective area that the two companies will explore is the Perseevsky license block in the Barents Sea, where Statoil is required to drill one exploration well by 2020. The agreement also calls for five exploration wells from 2016 to 2020 in three license areas in the Sea of Okhotsk. Statoil owns 33.33% of the joint venture, with Rosneft owning the balance.
Exxon Mobil (NYSE: XOM) is involved with exploring in the Arctic and also signed an exploration partnership with Rosneft earlier in 2012. The deal covers three fields in the Kara Sea and if the reserve potential in this area is confirmed, the partnership may invest $500 billion over several decades to develop the oil and gas resources. The agreement also covers oil and gas exploration prospects in the Black Sea. The two companies are gearing up and recently put out a tender for harsh duty rigs that can work efficiently in that environment.
Royal Dutch Shell (NYSE: RDS-B) is also targeting the Arctic and plans a number of exploration wells in the Chukchi Sea in Alaska. The company was supposed to begin drilling several months ago but has experienced delays in retrofitting the ship and equipment needed to contain an oil spill.
Royal Dutch Shell was just granted permission by the Department of Interior to begin preparation work at drilling sites in the Chukchi Sea. Royal Dutch Shell is required to stop drilling in late September, but is attempting to get an extension past that date as the company believes that ice is not a factor until November.
Statoil is also considering exploring in the Chukchi Sea in Alaska and was awarded more than a dozen leases at an auction in 2008. The company is partnering with Conoco Phillips (NYSE: COP) on an additional 50 leases.
Operators planning to explore and develop oil and gas resources in the Arctic region face a number of issues, none of which are insurmountable. The climate is a major problem with extreme cold, complicated by ice floes during certain times of the year. Transportation is also a concern as the region lacks established infrastructure to process and transport oil and gas to refiners and other end users.
Oil and gas development in the Arctic region also generates fairly intensive opposition from environmental groups as it is one of the few pristine areas that have not been touched by man. This may not be an issue in the portion of the Arctic controlled by Russia, but will certainly be an impediment to drilling in United States waters.
Overcoming these problems may be worth it for the oil and gas industry as analysts believe the region has a large amount of resources in place. The U.S. Geological Survey said in 2008 that the area north of the Arctic Circle contains an estimated 90 billion barrels of undiscovered, technically recoverable oil. The survey also estimated that there are 1,670 trillion cubic feet of natural gas, and 44 billion barrels natural gas liquids in that area spread across 25 basins.
Not Our First Rodeo
The Arctic saw extensive exploration back in the late 1970’s and 1980’s and operators found an estimated 1.9 billion barrels of oil and 19.8 Tcf of natural gas. These resources were insufficient to justify large scale projects and the wells were plugged and abandoned decades ago.
The oil and gas industry crashed and burned in the Arctic region a generation ago but hopes that this time will be different. Operators are counting on new technology and high commodity prices to make this attempt more successful than the last one.
shaleplays has no positions in the stocks mentioned above. The Motley Fool owns shares of ExxonMobil. Motley Fool newsletter services recommend Statoil (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.