Arctic oil, gas exploration to intensify despite concerns

Exploration for oil and gas in offshore Arctic waters is set to intensify as new technologies allow operators to drill safely in more remote areas, Statoil CEO Helge Lund said Thursday.

"Policies and technology represent barriers to Arctic activity but they are not show stoppers in my opinion," Lund told the World Petroleum Congress in Doha.

"Political support will always depend on the industry ability to deliver safe and efficient operations," he said.

Statoil and other oil majors have faced tougher restrictions on offshore drilling in Arctic waters in the wake of the Macondo disaster in the Gulf of Mexico.

Explorers such as the UK's Cairn Energy have also faced disruption to Arctic drilling plans caused by protests sparked by concerns about possible oil spills in the pristine Arctic waters off Greenland.

Statoil, which is a partner with Gazprom on the planned Shtokman development in the Barents Sea and plans to explore offshore Greenland, estimates that about a quarter of the world's undiscovered conventional oil and gas reserves are located in Arctic regions, Lund said.

Major technological challenges remained, however, with a need to deal with ice-locked seas and tough climate conditions to unlock Arctic resources, he said.

"We expect Arctic exploration to intensify, and yet-to-find estimates could grow pending seismic and exploration results and the industry's interest in the Arctic offshore to increase accordingly," Lund said.

He also reiterated a goal of raising Statoil's production from around 1.9 million b/d of oil equivalent in 2010 to more than 2.5 million boe/d in 2020.

At a briefing on the sidelines of the conference, Lund told reporters he believed a previously disputed area of the Barents Sea would soon be opened for oil and gas development, after Norway and Russia agreed on a border in September, 2010.

"I think there will be activity on both the Norwegian and Russian sides of the Barents Sea in the next two to three years," he said.

Statoil is involved in projects on both sides of the new border. In April, the company announced a significant oil discovery in Norwegian waters.

Reserves at the Skrugard field are currently estimated at 250 million barrels, Lund said Thursday. With further drilling, Statoil hoped to prove up 500 million barrels, which would support a new field development, he added.

In Russian waters, Statoil has a 24% interest in the giant Shtokman gas and condensate field, which remains undeveloped despite reserves estimated at 130 Tcf of gas and 270 million barrels of liquids.

Shtokman was a demanding field, but its development was well within the technical capacity of the industry, Lund said. However, fiscal issues were still holding back the long-awaited development.

The project needed fiscal terms applicable to a complex offshore project, and the foreign partners also required terms appropriate to a project of Shtokman's scope, Lund said.

The Shtokman consortium's other partners are Gazprom (51%) and Total (25%).

LNG from Shtokman and other Arctic gas fields is no longer expected to go to the US, but to Europe and Asia, after the North American shale gas boom of the past few years made the continent self-sufficient in gas.

"Ideally we would like as many markets to access as possible for Norwegian gas," Lund said.

Total CEO Christophe de Margerie said Wednesday that the complex, capital intensive Shtokman develop needed an improved tax system to be commercially viable.

"It's true that the tax structure and the tax element is very important for any project. The group of companies, Gazprom, Total and Statoil, have been asking from the government improved terms, not like the ones that have been delivered to Yamal LNG but in the same spirit," he told reporters when asked if he felt Moscow was prioritizing Shtokman over the Yamal project in the Russian Arctic.

"There are a few things to be solved before an FID [final investment decision] can be taken, which are linked with the operations and how we manage the projects, and especially what we keep within the joint venture and what we leave to Gazprom, which are not totally finalized," he added.

"I hope it will be done before the end of the year. That is our target but if it cannot be done by the end of the year, we will give you a new timing if necessary. At the end of the day, its an important project for what is still needed, which is more gas to the market and more gas to the European market," de Margerie said.

--Staff, newsdesk@platts.com

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