CNOOC on the Icelandic continental shelf

China is showing interest in oil exploration on the Icelandic continental shelf.

According to reports, China National Offshore Oil Corporation (CNOOC)  is partnering with the Icelandic firm Eykon Energy in an application for a license to explore and produce oil and gas in deep waters offshore Iceland. The area is called Dreki (Dragon Area) and is part of a micro-continent located between Iceland and the Norwegian island of Jan Mayen. Seabed samples from the area have indicated the presence of sedimentary rocks and an active hydrocarbon system.

Eykon Energy had earlier applied for an exploration and production license, but without an operating partner. Now, the Icelandic National Energy Agency (NEA) has announced that CNOOC has decided to participate in the application of Eykon Energy as an operator and potential licensee. The NEA will now evaluate further the financial and technical capacity of the applicants and their ability to undertake the exploration and production as described in the application. The NEA estimates that the processing of the application will be finalized within a few months.

Norwegian Petoro may also become a partner in the license with Eykon Energy and CNOOC. According to an agreement between Iceland and Norway from 1981, Norway has a right to up to 25% participation in any licence granted within the area of the agreement. Petoro is already participating in two other oil exploration and production licenses on the Icelandic continental shelf.

CNOOC’s participation in the project with Eykon Energy would mark the first entry of a major oil company into Iceland’s nascent oil sector (the only foreign oil companies that have been awarded exploration and production licenses in the Icelandic jurisdiction so far, are Faroe Petroleum and Ithaca Energy). If the application by Eykon Energy and CNOOC will be successful and a license will be awarded, it would mark the Chinese company’s first foray into offshore Arctic oil drilling; a new area the industry’s biggest players are scrambling to enter in efforts to replenish reserves.

The size of Eykon Energy’s  and CNOOC’s stakes in the partnership and the exact location of the offshore Arctic license area will be announced later (probably next autumn). Big oil companies are keen to tap some of the 90 billion barrels of oil the U.S. Geological Survey estimates the entire Arctic region may hold, but progress has been slow and exploration is still at a very early stage. The entrance of CNOOC may become an important step in speeding this process up.