January 4, 2013 / 9:26 AM / 7 years ago

Iceland bets on oil to boost fragile economy

* First successful licensing round after 2009 flop

* Norway to take 25-pct stakes in Icelandic oil licences

* Norway offshore area near Iceland seen rich in oil, gas

By Gwladys Fouche

OSLO, Jan 4 (Reuters) - Iceland is opening its waters for exploration to energy firms, and involving the help of oil-rich Norway in the process, as it looks to make use of its energy resources and boost its fragile economy.

On Friday Iceland and Norway are scheduled to sign a deal that will see Norwegian state-owned firm Petoro take 25-percent stakes in Icelandic oil licences awarded last month to London-listed firms Valiant Petroleum and Faroe Petroleum.

Iceland plunged into recession in 2009 after its biggest banks collapsed in the space of a few days when credit dried up globally.

Its 320,000 inhabitants were faced with bank liabilities eight times the size of the country’s gross domestic product.

More recently its economy has shown signs of recovery and authorities are hoping that developing the island’s rich energy resources will help spur Iceland’s growth.

“It brings us some optimism that we have such possibilities,” said Gudni Johannesson, director general of Iceland’s National Energy Authority.

“This will not solve the economics crisis we have now, but it will help us through the next one,” he told Reuters.

Norway, the world’s eighth-largest oil exporter, is taking the stakes in the licences under a 1981 treaty giving it and Iceland the right to own up to 25 percent in offshore areas along an agreed line in their previously disputed territorial waters.

Norway has rights in the area as it owns Jan Mayen island, a speck of land situated to the north-east of Iceland, some 1,000 kilometres (621 miles) west of Europe.

“We can contribute with our knowledge from the Norwegian experience (in oil exploration),” Petoro spokesman Sveinung Sletten said.

There are no figures for how much oil and gas Dreki could hold but the area off Jan Mayen island, which is geologically similar, could be promising.

It may hold up between 250 million and 500 million barrels of oil, the equivalent of a mid-sized North Sea field, according to the Norwegian Petroleum Directorate (NPD), the agency which manages Norway’s fossil fuel resources.

There could also be large gas deposits, potentially 100 billion standard cubic metres, according to the NPD.


The tender is a first for Iceland in its bid to open its offshore areas to oil firms. In 2009, in the midst of its financial troubles, Reykjavik tried and failed to launch a licensing round.

Yet this time just two international firms applied for licences, with none of the oil majors applying. An application by a third company, Iceland’s Eykon Energy, has been delayed until May to give it more time to find a suitable backer.

In the licence awarded to Faroe Petroleum, the firm will hold a 67.5-percent stake, Petoro 25 percent and private firm Iceland Petroleum the remaining 7.5 percent.

In the licence awarded to Valiant Petroleum, it will hold 56.25 percent, Petoro 25 percent and Icelandic private firm Kolvetni 18.75 percent.

The next step will be to analyse data already gathered about Dreki and to conduct more surveys of the seabed, which is expected to take about two years, with drilling operations potentially starting in five years.

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