Why Faroe Petroleum Stopped Looking in Drekasvæðið

On December 12, 2014 Iceland’s national energy authority, Orkustofnun, reported that they had “received a notification from operator Faroe Petroleum that the company along with its partners, Petoro Iceland and Iceland Petroleum, relinquish their licence” and that they had “accepted the relinquishment of the licence upon the fulfilment of its terms”.

The licence was issued jointly to Petoro Iceland, Iceland Petroleum and Faroe Petroleum on January 4, 2013. It granted the companies the right to look for resources in a specific area (red shading) of Drekasvæðið for a set number of years and to apply for a production licence in that area if any resources were found.

In their announcement Faroe Petroleum stated: “The results of the early research in the licence area appear to show that further seismic measurements in the next batch will not deliver the desired results”. In an interview with the Grapevine Þórarinn Sveinn Arnarson, Orkustofnun’s hydrocarbon licensing manager, said, “they chose, based on their evaluation, to give the license back” because “there was more basalt—more lava—in the area than they had hoped in the beginning.”

It’s like trying to remember all the characters in a Russian novel

Trying to keep the who’s who of companies involved with Drekasvæðið straight can be a bit like reading Dostoyevsky. In 2013 and 2014, three licences were given out by Orkustofnun. Each one was granted jointly to three companies and in each case the company with the largest percentage of the licence is the operator. All three companies collectively decide on a course of action, but the operator is responsible for carrying out the decision. For example, the operator, company A, agrees with companies B and C on spending a certain amount of money in 2015 to gather more seismic data, but it’s up to company A alone to send out the boats and research teams. According to Þórarinn, the operators “take care of the day-to-day activities” and “bill the other partners for the cost”.

The reason news coverage focused on Faroe Petroleum relinquishing its licence, as opposed to Faroe Petroleum, Iceland Petroleum and Petoro Iceland jointly relinquishing their licence, is Faroe Petroleum was ultimately responsible for the licence as the operator.

So why did they give it back?

According to the CEO of Faroe Petroleum, Nils Sørensen, the company’s research has shown no signs of oil or gas in the area. Þórarinn explained that as the microcontinent expands, lava (a.k.a. basalt) leaks out of it making it very difficult see what lies beneath. This does not necessarily mean they are positive there are no resources whatsoever, but that it is unlikely they will be able to find them. Þórarinn also pointed out that if they were to look much deeper down, past the basalts, it is likely the oil would be overcooked and unusable.

If there’s nothing there, why are we still talking about this?

After Faroe Petroleum’s announcement, Gunnlaugur Jónsson of Eykon Energy stated that they would continue their search and that their preliminary research was positive. Eykon Energy is a partner in the 2014/01 licence (green shading), which covers an area of Drekasvæðið that is more than twice as large as Faroe Petroleum’s 2013/01 licence. There may still be resources to find, but as of yet none have been reported.

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