New Frontiers: the little company looking to make a big splash looking for oil in the Arctic

The untapped oil and natural gas reservoirs of the Arctic, and specifically, the Barents Sea, are one of the next battlegrounds for companies seeking new reserves. In this week’s Oilgram News column, New Frontiers, John Roberts looks at that search, and a small company that is trying to be a leader in this effort.


High in the Arctic lies the Barents Sea, the focus of Norway’s biggest licensing round in a generation and the prime target of a small company that, perhaps uniquely, is actually headquartered north of the Arctic Circle.

The Norwegian Government launched its latest licensing round, the 22nd, in December and is expected to announce the awards in late May. The Ministry of Petroleum and Energy is considering possible licenses for up to 86 blocks, of which no less than 72 are in the Barents.

Not all the blocks will be licensed. Moreover, as North Energy CEO Erik Karlstrøm cautions: “The number of license awards is not a good measure.” Karlstrøm considers the best way to assess how well companies have done in the round will be by the number of stakes they secure in prospects that require actual wells to be drilled.

“The well commitment is the differential. A license without a well commitment is not considered good enough,” Karlstrøm told Platts in a telephone interview. He expected that the ministry would attach well drilling commitments to five or six licenses, adding, “We would be very happy to get three well commitments.”

Blog entry continues below…

Request a free trial of: Oilgram News Oilgram News
Oilgram News Oilgram News brings fast-breaking global petroleum and gas news to your desktop every day. Our extensive global network of correspondents report on supply and demand trends, corporate news, government actions, exploration, technology, and much more.
Request a trial to Oilgram News

North Energy, which has just 40 or so permanent employees, has been a winner before. It was the most successful of the smaller companies in the 20th licensing round in 2009, the last time the Barents was the center of attention. That yielded a 20% stake in Norvarg, where gas was discovered in 2011 and where Total is currently drilling its first appraisal well. Karlstrøm said: “There’s a lot of gas in the ground; the question is how fast we can get it out and how much of the gas we can get out. It’s a big, expensive project.”

Although North Energy has stakes in both Norwegian Sea and North Sea fields, its prime focus is the Barents and its headquarters are in Alta, a town located roughly the same latitude as Deadhorse, Alaska, on a fjord pointing due north to the Barents.

Karlstrøm said: “There’s a lot of gas there [in the Barents]. As we go north, we are also starting to see more oil again. The ratio may be around 50:50.” Concerning oil, there’s a particular interest in the areas north of the Skrugard and Havis discoveries, where Statoil is evaluating how to develop an estimated 400 to 600 million barrels of oil.

The most striking aspect of the 22nd round is that it does not cover the Norwegian half of the 175,000 square kilometers zone formerly disputed with Russia, and for which a boundary treaty was signed in 2010. But the Petroleum Ministry has already started preliminary work on a 23rd round covering the Norwegian half with Norwegian sources saying it could be launched by the end of the year.


There is, however, a new joint “RU-NO Barents Project” involving leading companies working on either side of the new frontier — including Statoil, ExxonMobil, Chevron and Lukoil — in assessing common technological challenges in both halves of the Barents, and in Russia’s Pechora and Kara Seas. This could encourage Russia to accelerate the much slower pace of development on its side of the line. So, too, could the boundary treaty itself, which provides for joint development of fields straddling the new line. Russian officials say they do not even plan to conduct any seismic in their section of the formerly disputed waters until 2014 at the earliest.

The Barents, of course, is cold and stormy. And there are other problems as well. Right now, there’s a shortage of rigs. Only a few of the 48 rigs currently in service on Norway’s Continental Shelf are in the Barents but there are a further 17 rigs — nine semi-submersibles and eight jackups — currently on order or under construction. These should all enter service by end-2015, with many headed for the Barents.

Getting production out poses questions. Oil can be shipped, but companies finding gas will either have to produce enough to justify a new LNG train or rely on new pipelines running back to the shore — sometimes more than 400 kilometers away — which will have to be laid and then linked up to major export pipes to the south.

North Energy emphatically favors pipeline development, so Karlstrøm was pleased when the government recently decided to put plans for a second LNG train at Hammerfest on hold. His concern was that a second train would concentrate almost all of Norway’s Arctic industrial development at a single location, Hammerfest, whereas pipeline connections would encourage development throughout Finnmark, Norway’s most northerly region.

And, of key importance for those who look to see production from the Barents compensate for anticipated post-2020 falls in North Sea output, an LNG terminal would also pre-empt the prospects for a 1,000-km offshore gas pipeline that would carry Barents Sea gas to connections with existing pipelines carrying Norwegian and North Sea gas to markets in Germany, France and the UK.

–John  Roberts in Edinburgh

Share this:
Facebook Twitter Email

All blog comments are moderated before being published.

There are no comment on this post yet.

Your Comment