Desperately in need of new revenues, Islands still wary of spending fishing funds on hydrocarbon search
Jeremy Beckman
European Editor
Oil finds west of the Shetland Islands last year precipitated speculation of major new provinces throughout the North Atlantic. Western Ireland, hundreds of miles to the south, garnered the initial hypotheses, but the Faeroe Islands look to be the more logical choice.
Uppermost in their favor is yet another BP Shetlands well, recently drilled and assigned tight hole status, to the east of Faeroese waters. If hydrocarbons have been located here, pressure will mount to extend exploration across the median line.
However, the Faeroes are not exactly free agents in this regard. Like the Irish, they desperately need the revenue petroleum would bring, but they are wary of dissipating hard-earned funds from fishing on hydrocarbon administration. Also, there is the matter of boundary disputes with Britain to iron out.
The Faeroes are an archipelago of 18 islands situated between Scotland, Iceland, and Norway, with the Shetlands the closest land at 160 miles to the southeast. The islands form the eroded top of the northeastern section of a volcanic basalt layer covering virtually the entire Faeroe-Rockall-Hutton plateau. This plateau is divided from the European continental shelf by the Rockall Trough and the Faeroe-Shetland Channel.
The basalt has hindered oil industry exploration of the rocks known to lie underneath. Traces of oil and gas have been found in the 2,000 meter Lopra-1 well drilled on Suderoy Isle, but the well was terminated 200 meters from the point where the basalt crust gives way to sedimentary formations.
Since this coring program was halted, however, seismic techniques have leapt ahead. Currently, Western Geophysical is in its second year of a 12,000-line km survey covering some of the most prospective Faeroese waters.
Mineral rights
Only recently has the Islands' government been in a position to approve such a program. After centuries of Danish possession, they were finally granted home rule in 1946; but management of their own mineral resources did not become a home rule responsibility until 1992.
Seventeen years had passed since the Faeroes requested this option in 1975. On that occasion the Danes turned them down due to nervousness over scarcity of oil supply: another mineral-rich Danish outpost, Greenland, was by then also on its way to a different form of home rule.
According to Arni Olafsson, chairman of the Faeroes Hydrocarbon Planning Commission, the 17-year delay wasn't significant because the tools to explore and produce hydrocarbons from the Faeroese shelf have only recently become available. But it does demonstrate the Islanders' patience in arguing their rights, as Britain has discovered.
Both the UK and the Islands operate 200-nautical-mile fisheries limits. However, due to differences over the position of Faeroese baselines and some UK rocks and inlets, there are three areas where the limits overlap. These are known as the grey zone.
Negotiations on the continental shelf boundary between the two nations have been held intermittently since 1978. These are the limits that would affect the petroleum industry. The Danes and the Faeroese want the shelf boundary to follow their version of the Faeroese fisheries median line, but Britain does not accept this.
Basically, according to Al Stanton of Edinburgh analysts Wood Mackenzie, "The UK's stance comes down to oil and gas". The UK is anxious to maintain the momentum of the West of Shetlands area as the next great oil province. More blocks in the immediate vicinity are being auctioned under its current 16th licensing round, and next year's 17th round will offer blocks far out into the Atlantic, some precariously close to Faeroese waters.
Recent talks between the three countries involved have led to a softening of attitudes, Stanton hears, although little has been publicized. "But there won't be a zone of co-operation as far as oil and gas is concerned; a line will be drawn." Ultimately, this line may have to be decided by the International Court of Justice, although neither side would like to have the decision taken out of their hands.
It may be in the Faeroese's interest to speed up the process. As Stanton points out, West of Shetland activity is generating a lot of interest in Faeroese waters, but this could also fade quickly if exploration turned down in the UK.
License prospects
After winning control over their seabed minerals from Denmark in 1992, the Faeroes set up the Hydrocarbon Planning Commission. A year later, a national petroleum administration was created, known as OFS (Oljufyrisitingin). OFS and the Commission recommended last year's seismic survey, for which the government issued permits.
Two permit areas were established covering 190,000 sq km in three sectors within Faeroese-designated boundaries. Of these, Sectors A to the south and Sector B east of the Islands are considered the key areas. The bulk of the acreage is in the supposedly less prospective sector C.
Western Geophysical was awarded both permits: its two year program includes acquisition of marines seismic, magnetic and gravimetric data as well as a full walk-away vertical seismic profile in the Lopra-1 well.
Last May, the government reconstituted the Hydrocarbon Planning Commission, charging it with drafting the legislative framework for a possible first licensing round and preparing recommendations concerning tax. Realistically, 1997 is probably the earliest date for licensing.
A condition of Western Geophysical's surveys is that the Faeroese government is paid a share of revenue from sale of the data. The one known taker is a consortium of Enterprise Oil, Mobil, and Statoil Denmark. According to Harald Snarvold of Enterprise's Atlantic team, "We will manipulate the data this year, then possibly buy more from Western."
For all three companies, the Faeroes fits in with their strategy of strength along the North Atlantic margin. All operate acreage offshore Ireland (including the deepwater blocks in the Slyne Trough), west of the Shetlands, and in the northern Norwegian North Sea.
To cut Faeroes investigation costs, they are pooling their expertise. According to Snarvold, Mobil and Statoil both offer experience of deepwater drilling and developments in harsh environments. The trio is also interchanging data from these strung-out basins for modeling purposes.
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