Big Oil warms up to Arctic despite challenges

Interest in the Arctic  is growing among the Big Oil operators, despite limited infrastructure, high royalties and taxes and safety concerns in the harsh environment that continue to challenge commercial success, an Ernst & Young report said Wednesday.

The frigid top of the world reaches into  several countries – the United States,  Canada, Russia, Greenland and Scandinavian nations – and oil and gas interests  have worked to access the huge resources believed to exist in the Arctic. It is estimated to contain more than 90 billion barrels of oil.

Twenty major oil and gas basins have been discovered in the Russian shelf, 10  of which have proven reserves, the report said. Leading international oil companies already are vying for position: Exxon Mobil Corp. signed a joint offshore development agreement with Rosneft in 2011 for a project in the Arctic Kara Sea which, combined with another one in the Black Sea of southern Europe, is estimated at $500 billion.

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Canada, by contrast, has  no  offshore drilling activity, the report says. The only offshore well drilling in Canada’s Arctic was abandoned in March 2006, less than a year after it began. Chevron Corp. and Norway’s  Statoil, however, are planning a  3-D seismic program to explore potential opportunities  in the  Beaufort Sea.

In the summer of 2010, the British oil company Cairn Energy bought licenses in eight offshore areas of Greenland. Cairn has discovered  oil and gas in the region, but has non announced commercial  breakthroughs.

Norwegian authorities first opened the Norwegian Barents Sea for exploration in 1981, and Statoil has been an active operator in its waters over the last three decades.

Royal Dutch Shell, one of the first companies  to attempt drilling in the U.S. Arctic, has  invested $5 billion in the effort, but has faced regulatory, environmental and technical challenges.

Now changes  in the oil industry may work against it, Ernst & Young said.

Shell  started buying its U.S. Arctic leases to drill in Alaska’s Beaufort and Chukchi seas in 2005, banking that the U.S. desire for energy security would trump environmental concerns. The shale oil and gas boom  in North America, however, has made the perceived need for complicated Arctic exploration  less pressing.

Shell frames Arctic work  as a race for international resources.

“The Arctic is really a global issue, not an Alaska issue,” said Marvin Odum, president of Shell North America, at a Shell technology conference in January. “There are a number of companies going into the Arctic. Russia, for example, has big plans to go in and explore and go after that very massive resource space.”