Icelandic Oil

Iceland Oil Map (courtesy Barents Observer)

Iceland Oil Map (courtesy Barents Observer)

Iceland has thrown its hat in the ring for arctic oil drilling, opening up the Northern Dreki area along the Jan Mayen Ridge for offshore oil leases.  Reykjavik plans to open bids 15 January and award licenses by 15 April.  From The Times,

Several British groups and StatoilHydro, of Norway, are among those considering submitting bids in January for about 100 exploration licences. They cover 40,000sqkm of ocean more than 300km northeast of Iceland and south of the Norwegian Jan Mayen islands.

The water depth ranges from 800 metres to about 2,000 metres, according to Thorarinn Arnarsson, hydrocarbon licensing manager at the National Energy Authority in Iceland.

With oil prices reaching $147 per barrel last month, the high costs and technical complexity of operating in such remote regions look increasingly manageable. The retreat of Arctic ice sheets caused by climate change has also made drilling easier.

Kristinn Einarsson, project coordinator at the Energy Authority in Iceland, said that plans for an earlier exploration round in the region had been scrapped in the 1990s because the area was considered too challenging. “We think the technology now exists,” he said, citing drilling projects in waters of up to 3,000 metres in the Gulf of Mexico and off the coast of Brazil.

The official press release from the Icelandic Ministry of Industry, Energy, and Tourism is here.  Along with the exploratory leases, which could run for a period of up to 16 years, Iceland is also introducing a new tax regime on oil exploration and production.  From Anthea Pitt at Upstream Online:

Recommendations for the financial regime to be put in place ahead of the round, which opens on 15 January next year, have already been drafted by the Ministry of Finance and approved by Cabinet.

Legislation based on the proposals will be passed by Iceland’s parliament, the Althing, this quarter, enabling the round to go ahead as scheduled.

Last month, Kristinn Einarsson from the Icelandic National Energy Authority told Upstream that the country plans to set up a “simple and effective tax regime” to attract explorers to its frontier play.

Einarsson added that Iceland planned to take a “reasonable” share of possible oil gains. However, he said the North Atlantic nation would not be setting up a national energy company, stressing Iceland is keen to preserve a competitive environment with neighbours Norway, the Faroe Islands, Canada and Greenland.

The Ministry of Finance has recommended that oil companies pay a general corporate income tax, which is currently 18% but due to be lowered to 15% by the end of this year.

A second progressive processing tax will then be paid dependent on annual petroleum production, while also taking into account global crude prices, Einarsson said.

A progressive hydrocarbon income tax will replace the processing tax when gains from a petroleum resource have reached 20%.

The new taxation regime starts with a 15% corporate income tax and adds a progressive processing tax once production gains exceed 20%.  The processing tax would start at 29% for gains between 20% and 25% and cap out at 40% once gains hit 30%.

Of course, this doesn’t come without some competing claims.  About 30% of the area on offer is covered by a treaty with Norway, which gives Oslo the right to take a 25% stake in licenses.

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1 Response to Icelandic Oil

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