While Canada and the U.S. ban Arctic drilling for oil and gas motivated by environmental concerns, and majors such as Shell pull out of their Arctic projects due to financial pressures, Norwegian energy companies are planning to increase drilling in the country's Arctic shelf in the Barents Sea.
It seems that the limited oil price increase that followed OPEC's production cut deal has been enough for Statoil and Lundin to decide to allocate more funds to Arctic drilling, especially since the price rise has been accompanied by a major discovery for Lundin and a likely future major discovery for Statoil.
Lundin announced earlier this month that it had struck a deposit holding between 35 and 100 million barrels of oil equivalent in its Filicudi prospect in the southern Barents Sea. According to the company, which is exploring the prospect in partnership with Aker BP and Dea, Filicudi may contain as much as 700 million barrels of oil equivalent.
Statoil, for its part, is gearing up for a major drilling campaign focusing on what could turn out to be the largest field in Norway's Arctic shelf: the Korpfjell field. Dubbed an elephant, Korpfjell may hold up to 10 billion barrels of crude, not least because of its immediate proximity to another promising deposit, the Perseevsky oil prospect in the Russian section of the Arctic. Perseevsky is being explored by Rosneft in partnership with Statoil.
Naturally, there is major environmental opposition to this Arctic foray: Greenpeace, Bloomberg recalls, last year launched a lawsuit against the Norwegian government for awarding exploration licenses in the Barents Sea. The case will be heard this fall. Related: Why Is Smart Money So Long In Oil?
According to one Greenpeace activist, the head of its Norway operations, it's not just about the environment, either. Barents Sea oil, says Truls Gulowsen, will be the most expensive in the world due to high production costs. The opinion is evidently not shared by Lundin, Statoil, or their partners in Arctic exploration-and for a good reason.
Statoil has done wonders with efficiency, cutting production costs at two other major finds from well above US$50 a barrel to below US$30. At Johan Sverdrup, the biggest new discovery in the Norwegian North Sea, costs have been brought down to below US$25 a barrel for the full development phase of the project. Johan Castberg, in the Barents Sea, has a breakeven point of US$35 a barrel, down from US$80 several years ago.
On the whole, Statoil's so-called next-generation projects have an average breakeven point of US$27 - an impressive figure at current oil prices, but all the more impressive compared to the 2013 average breakeven for these projects, which was US$70 a barrel.
Arctic oil is vital for Norway: according to Energy Minister Terje Soviknes, in less than a decade, the country's currently exploited fields will be depleted, potentially creating a serious deficit. That's why big discoveries are urgently needed.
The Barents Sea is a natural focus of attention since it is estimated to contain about half of Norway's still undiscovered oil reserves, according to the country's Petroleum Directorate. What we are seeing now in Norway is how combining promising assets with an efficiency drive can make what at first glance seems a high-risk undertaking a potentially very successful one.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More