OIL explorer Faroe Petroleum was awarded its first licences to start drilling off the coast of Iceland on Tuesday as the North Atlantic nation begins to exploit its natural resources.
Aberdeen-based Faroe, which already operates in UK and Norwegian waters, has been granted two licences inside the Arctic Circle by Iceland’s government.
Under a deal that dates back to the 1980s, the Norwegian government has the option of taking stakes in five of the seven blocks awarded to Faroe.
If the Norwegian parliament votes in favour of taking a 25 per cent stake in the five blocks then it will do so through its state-owned oil company, Petoro.
Iceland Petroleum will also take small stakes in all seven Faroe fields.
Iceland has awarded some of the licences on a provisional basis until Norwegian MPs decide whether they want to take part in the exploration wells.
The blocks covered by the licences lie to the south of the Jan Mayen Ridge, which lies between East Greenland and the Norwegian continental shelf.
Several giant oil and gas fields have already been developed in the area and recent samples have indicated that oil and gas is present in the blocks.
Valiant Petroleum, another North Sea driller, has also been awarded licences under the second Icelandic licensing round.
Graham Stewart, Faroe’s chief executive, said: “As with our Norwegian Barents Sea licences, this new Icelandic Jan Mayen Ridge licence has significant hydrocarbon potential, and is located in ice-free waters.”
Faroe also announced that Iain Lanaghan, its finance director, will stand down in April.
Sam Wahab, an analyst at Seymour Pierce, said: “Whilst the Arctic Circle is widely regarded as a challenging environment for oil and gas exploration – most notably through Shell’s ongoing struggle to drill the Chukchi and Beaufort Sea wells this year – there is growing interest in the area in an effort to meet increasing energy demand in the surrounding countries.
“We have seen Statoil announce the intention of trebling its capex spend in Arctic waters.”
Faroe is the latest Scottish oil company to be given permission to drill in the Arctic, following on from Edinburgh-based Cairn Energy’s exploration wells off the coast of Greenland.
Faroe shares dipped 1.25p to close at 137.5p, valuing the firm at about £300 million.