Greenland’s New Frontier: Oil and Gas Licenses Issued, Though Development Likely Years Off

By Kevin Casey While development of oil and gas in Greenland has historically focused on offshore areas west of Greenland, the Bureau of Minerals and Petroleum of the Government of Greenland awarded the first oil and gas exploration and exploitation licenses for eastern Greenland on 20 December, 2013. The initial four licenses were awarded to three consortia of companies that have been involved in seismic exploration in the region since 1989. In addition, a further fifteen leases are under consideration for 2014.[1] While northeastern Greenland’s continental shelf could potentially hold some of the largest undiscovered oil and gas resources in the Arctic, the region presents serious environmental, economic and political challenges to oil and gas exploration. These challenging conditions raise serious questions as to how economically, technically, and environmentally practical significant oil exploration and production can be in the Greenland Sea in the near future.

Greenland Sea oil and gas potential

In 2008, the U.S. Geological Survey ranked the East Greenland region 4^th out of 25 oil and gas provinces in the Arctic in terms of hydrocarbon potential, estimating that the region contained up to 31,387 million barrels of oil equivalents in oil, gas and natural gas liquids.[2] The region is separated into three distinct geological provinces: the North Danmarkshavn basin, the South Danmarkshavn basin, and the Thetis basin. The North and South Danmarkshavn basins are very similar to petroleum-bearing sequences in the Norwegian Sea with potential source rocks and petroleum traps. As such, these two basins were assessed to have a much higher potential for undiscovered hydrocarbons, though a significant portion of the reserves are projected to be gas and natural gas liquids (see map above).

Previous Oil and Gas Exploration: The Kanumas Project

Interest in Greenland’s oil and gas potential has experienced many ups and downs over the past fifty years. Price spikes in the 1970s spurred exploration, though subsequent price declines and the lack of any significant finds caused international oil companies to lose interest.[3] Additional licenses in western Greenland were offered in the early 2000s, but no major companies applied. In the face of tepid interest from the oil and gas industry, Denmark and Greenland sought to more actively promote the region’s potential and encourage investment by directly funding extensive seismic exploration in promising areas. Rising oil prices in the middle 2000s helped to increase interest in Greenland’s oil again, and in 2006 several major oil companies bid on licenses in Western Greenland, through exploration there to date has not revealed any promising prospects.

Interest and investment in northeastern Greenland has also proceeded through starts and stops over the past decades. Petroleum geologists suspected this region contained oil and gas long before the USGS’s assessment in 2008. In 1989, Denmark granted a prospecting license to a consortium of companies to conduct initial petroleum exploration in areas offshore of western Greenland in the Greenland Sea. The consortium was known as the Kanumas project and consisted of ExxonMobil, Statoil, BP, Japan National Oil Compnay, Texaco, Shell and NUNAOIL.[4] Between 1990 and 1996, the project collected over 7000km of seismic data from extreme northern areas offshore of eastern and western Greenland. As part of the original prospecting licenses, consortium members were granted preferential bidding rights on any future exploration and exploitation licenses in these regions.[5] The Kanumas Group did not exercise this right in western Greenland, but chose to exercise its preference right for leases in the Greenland Sea.

Oil and Gas Licensing in the Greenland Sea

In April, 2011, the Government of Greenland opened the current licensing round for exploration in the Greenland Sea. The process was divided into two rounds. In the first round, the Kanumas Group selected four license units, designated Avinngaq, Amaroq, Umimmak and Nerleq, located in the North and South Danmarkshavn basins (see map below). These leases were divided between three consortia:

- Avinngaq was awarded to Statoil, ConocoPhilips and NUNAOIL

- Amaroq was awarded to ENI, BP, DONG and NUNAOIL

- Umimmak and Nerleq were awarded to Chevron, GreenPex, Shell and NUNAOIL.[6]

Challenging Ice Conditions

While these four licenses represent the greatest potential for oil and gas discoveries, the prevailing ice conditions in these areas will present extreme challenges to exploration activities. The entire region is ice covered for most of the year. Only in exceptional years has open water appeared throughout the license areas in August and September. Coincidentally, several exceptionally low ice years occurred in the early 1990s, facilitating the Kanumas seismic surveys that have been instrumental in describing the resource potential of the region and driving the push for more exploration.

The complex ice conditions in the license areas are due to their geographic location in the Fram Strait between Greenland and Svalbard. The Fram Strait is the deepest gateway between the Arctic and the rest of the world’s oceans and is dominated by two alternating currents. The West Spitsbergen Current carries warm, salty water northward along the western Fram Strait toward the pole from the Norwegian Sea while the East Greenland Current brings cold, low salinity south from the Arctic Ocean along the east coast of Greenland. The East Greenland Current also transports significant amounts of multi-year ice from north of Greenland, where there is a ready supply of old ice, south along Greenland’s coast. Around 10-15% of the Arctic’s total ice mass is transported south through the Fram Strait each year.[7]

Due to the cold East Greenland current and the import of multi-year ice, conditions vary dramatically between the eastern and western sections of the Fram Strait. Western sections of the Fram Strait nearest to Svalbard have witnessed a gradual retreat of ice extents over the preceding decades and see many more ice-free days than the eastern sections of the strait.  While areas of the eastern Fram Strait on the margins of the license areas have seen an increase in the number of ice-free days in the summer since 2000, the northern sections have remained stubbornly ice-bound. An ice conditions report produced by the Danish Meteorological Institute for the Bureau of Minerals and Petroleum in 2011 concluded that the northern and western sections of the license area have averaged exactly zero ice free days per year between 2001 and 2010.[8] In 2013, several areas of open water formed in areas covered by the licenses in July and August, though these areas closed quickly in early September (see map above). Extensive ice coverage, the presence of multi-year ice and year-to-year variability in ice conditions will make it difficult and expensive to conduct exploration activities in the region under the current ice regime. Drilling operations will likely require extensive ice management by supporting icebreakers, significantly increasing logistical costs.

Political and Economic Considerations

The Bureau of Minerals and Petroleum initiated the current leasing round in April, 2011, and planned to awarded licenses in the first round by March, 2013. This schedule was complicated by Greenland’s elections in March, 2013, during which the ruling party lost out to a new coalition headed by the Siumut party. The new government of Prime Minister Aleqa Hammond expressed disapproval for the rapid pace of oil and gas exploration in Greenland and hesitated to move forward on new oil and gas leases. Increased oversight of offshore operations was promised, and the Kanumas leases were put on hold.[9] In May, industry and minerals minster Jens-Erik Kirkegaard clarified his government’s position, saying that new oil exploration licenses would be issued as old ones expired.[10] The current government’s hesitancy on oil and gas exploration reflects the divided opinions of Greenlanders in general on the quickening pace of oil and gas development.[11] The new government may also be seeking to prioritize mining development over oil and gas exploration, seeing more potential for revenue in minerals, and also more active interest from mining concerns.[12] That said, the current government is interested in the potential revenues that oil and gas development can bring as a way to develop more financial independence from Denmark. After initial cautiousness, it is likely that the current government will continue to promote oil and gas development in Greenland while simultaneously looking to increase oversight and accountability.

Hammond’s government has also suggested that changes to Greenland’s oil and gas fiscal regime are currently being contemplated. Upon taking office, Hammond stated that she would push to incorporate royalty payments for mineral licenses going forward, a significant change from the previous fiscal regime that relied solely on corporate taxes.[13] A government panel has been formed to reevaluate Greenland’s resource tax structure, and it is possible that the government will decide to assess a royalty on oil and gas production, perhaps along with reductions in the marginal corporate tax rate.[14] It is likely that continued uncertainty will further delay investment in exploration and extraction until fiscal conditions are better defined.[15]

Finally, global petroleum markets may make exploitation of oil and gas deposits in the Greenland Sea unfeasible in the near and mid-term. Due to the remote location, lack of oil and gas support infrastructure and challenging operating conditions, exploration and development of any oil and gas fields in the Greenland Sea will require extensive investment. Statoil has had to delay production of the Johan Castberg field in the Norwegian Barents Sea due to high costs of development. The Castberg field is suspected to contain 600 million barrels of oil, is in an ice-free region of the Barents Sea and is relatively close to oil and gas infrastructure in Norway.[16] The lesson here is that even large proven reserves of oil are not enough to make Arctic oil and gas developments economically feasible, even in less remote regions such as Norway’s Barents Sea. In the near term, other investment opportunities may appear more attractive to international oil companies than pursuing Greenland Sea oil and gas. ExxonMobil withdrew its application for Greenland Sea licenses in early December, 2013, amid speculation that it was refocusing on more promising investments in North American unconventional oil and gas and a burgeoning partnership with Rosneft in Arctic Russia.[17] Additionally, even a slight downward trend in oil prices could have a significant impact on the profitability of such marginal projects.

Conclusion

While this round of licensing has attracted major companies such as Statoil, Chevron, BP and Shell, it is unlikely that oil prospects in the Greenland Sea will allow Greenland to break free of the boom and bust cycle of exploration and investment and finally achieve sustainable oil and gas development anytime in the near future. Significant challenges stand in the way. First, while the USGS assessment is promising, exploratory drilling will need to identify oil in sufficient quantities to warrant the extraordinary investment that will be required to bring it to market. Second, while global warming continues to improve conditions for oil and gas exploration in the Arctic, the peculiar geography of northeast Greenland means that ice conditions will continue to be challenging for the foreseeable future. Operations in northeast Greenland will thus remain expensive, technically challenging and risky. Third, while the political will seems to exist in Greenland to support oil and gas development, significant fiscal and regulatory details remain vague. Until these are resolved, and resolved to the satisfaction of oil and gas companies, this uncertainty will continue to be a barrier to investment.

Finally, there is the issue of economic feasibility. The most recent flood of interest in Greenland’s oil flowered before the unconventional oil and gas revolution began upending global supplies, prices and investment. Was ExxonMobil’s departure from the stage an isolated case, or the canary in the coal mine? The remaining companies with licenses in the Greenland Sea, and those that have submitted applications for the upcoming round, likely see the region as a long term prospect. Licensed companies will devote the subsequent years to additional seismic surveys to better define the prospects, while also developing a better understanding of the region’s ice dynamics that will dictate operations in future years. Eventual production of oil and gas in the Greenland Sea is far from certain at this point, and will depend on the development of these political and economic factors over the coming years.

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^[1] Government of Greenland, “Three consortiums are granted exploration and exploitation licenses in the Greenland Sea,” Press Release, 20 December 2013. http://www.bmp.gl/index.php/petroleum/exploration-a-exploitation.

^[2] Circum-Arctic Resource Appraisal: Estimates of Undiscovered Oil and Gas North of the Arctic Circle, U.S. Geological Survey, 2008. http://pubs.usgs.gov/fs/2008/3049/.

^[3] Andreas Østhagen, “Dimensions of Oil and Gas Development in Greenland,” The Arctic Institute, 19 December 2012. http://www.thearcticinstitute.org/2012/12/dimensions-of-oil-and-gas-development.html. Accessed 1/2/2014.

^[4] Government of Greenland, “Licensing rounds in the Greenland Sea Area,” April, 2011. http://www.bmp.gl/images/stories/petroleum/exploration_exploitation/2012-13/BMP_Invitation_letter_North_East_Greenland.pdf, accessed 1/2/2014.

^[5] Donald L. Gautier, “Oil and gas resources of northeast Greenland,” GEO ExPro, October, 2011.

^[6] Government of Greenland, “Three consortiums are granted exploration and exploitation licenses in the Greenland Sea,” Press Release, 20 December 2013.

^[7] R. Kwok, G.F. Cunningham, and S.S. Pang, “Fram Strait sea ice outflow,” Journal of Geophysical Research, 109(2004), 1.

^[8] KANUMAS MET/ICE/OCEAN Overview Report 2011, Danish Meteorological Institute, 2011. http://www.bmp.gl/images/stories/petroleum/exploration_exploitation/2012-13/EGRL_report_ver05.pdf. Accessed 1/2/2014. ‘Ice free’ is defined as ice concentrations of less than 30%.

^[9] Terry Macalister, “Greenland halts new oil drilling licenses,” The Guardian, March 27, 2013.

^[10] Clemens Bomsdorf, “Greenland minister: Will issue new oil exploration licenses,” Rigzone, 17 May, 2013.

^[11] Philip Reeves, “Greenlanders divided on Arctic oil, gas exploration,” NPR, 17 August 2011. http://www.npr.org/2011/08/17/139696551/greenlanders-divided-on-arctic-oil-gas-exploration, Accessed 1/2/2014.

^[12] Peter Stanners, “Premier: Greenland’s future lies underground,” The Copenhagen Post, 18 April 2013. http://cphpost.dk/news/premier-greenlands-future-lies-underground.5002.html, accessed 1/3/2014.

^[13] Clemens Bomsdorf, “Greenland to charge exploitation royalties,” The Wall Street Journal, 27 March 2013. http://online.wsj.com/news/articles/SB10001424127887324685104578386631474672010, accessed 1/3/2014.  Ernst and Young, “Greenland – The new frontier,” Oil and Gas Alert,

^[14] Ernst and Young, “Greenland announces Parliamentary election on 12 March 2013 and appointment of committee to address taxation of mineral resources,” Global Tax Alert, 12 February 2013. http://www.ey.com/Publication/vwLUAssets/Global_Tax_Alert_Greenland/$FILE/Global_Tax_Alert_Greenland_CM3202.pdf, accessed 1/3/2014.

^[15] The Economic Council, “The Economy of Greenland 2013,” September, 2013.

^[16] “Statoil recommends Johan Castberg project delay,” Oil and Gas Journal, 5 June, 2013. http://www.ogj.com/articles/2013/06/statoil-recommends-johan-castberg-project-delay.html, accessed 3 January 2014.

^[17] Kevin McGwin, “If ExxonMobil speaks, will oil industry listen?” Arctic Journal, 12 December 2013. http://arcticjournal.com/oil-minerals/if-exxon-speaks-will-oil-industry-listen, accessed 1/4/2013.

Arctic Oil and Gas: Assessing the Potential for Hydrocarbon Development in the Polar Region

By Andreas Østhagen The U.S. Geological Survey (USGS) world petroleum assessment from 2000 estimated that 25% of the remaining recoverable undiscovered oil and gas resources in the world were located in the Arctic region. Although these figures proved inaccurate and were subsequently revised downward, e.g. in the 2008 Circum-Arctic Resource Appraisal, the assessment was sufficient to brand the Arctic region as a “new energy province.” In the following years a number of international oil companies, such as Shell Oil, Total, and ExxonMobil, secured drilling rights during various licensing rounds. The significant hydrocarbon reserves contributed to the Arctic region being moved into the focus of world politics over the past decade. With the hope to gain access to the debate surrounding the quickly changing region a number of countries, including China, Singapore and Italy, submitted applications for permanent observer status on the Arctic Council.

A closer examination of oil and gas development in the “High North” reveals that despite significant undiscovered reserves a nuanced investigation of the concept of Arctic oil and gas is needed before any accurate and reliable predictions can be made on the future of the region hydrocarbon potential.

First, Arctic petroleum development is inherently dependent on commercial profitability. Sustained high oil and gas price levels, in combination with the cost of extraction, are the main determinants in the decision to invest in Arctic extraction. Price levels for oil have remained at an annual average of almost $100 per barrel since 2008 allowing for an interest in Arctic resources to develop. The International Energy Agency (IEA), and the world markets, however, expect the price to fall in the long term. The IEA also argues that the cost of Arctic oil production will be very high, ranging anywhere between forty to one hundred dollars per barrel. Should these predictions come true, the profitability of Arctic oil extraction will be dramatically reduced.

Similarly, the natural gas spot price for the North American market has  seen a remarkable shift over the last decade. Natural gas prices rose sharply prior to 2009, prompting interest in Arctic natural gas. In 2010, however, following a sudden boom in domestic shale gas production, the United States embarked on a path to self-sufficiency with price levels dropping subsequently for the whole of North America. As a result natural gas from the High North will not be as profitable as originally predicted.

A second obstacle to Arctic petroleum development is environmental concerns. In the North American Arctic, as elsewhere, the public is concerned about the environmental risks related to oil and gas extraction. The 1989 oil spill from the tanker Exxon Valdez in Alaska, and more recently, the Deepwater Horizon accident in the Gulf of Mexico in 2010, serve as public reminders of the potential consequences of drilling activity in ecologically sensitive areas. Greenpeace’s “Save the Arctic” campaign has successfully taken advantage of this public sentiment. Litigation and activism by indigenous communities and local NGOs have also successed in halting halted much of the Chukchi Sea development in Alaska.

As more and more attention is paid to the Arctic, it becomes increasingly difficult for political decision makers, cognizant on their public image, to strike the right balance between economic interests on one hand and environmental risk on the other. Discussions concerning Arctic oil and gas activities often inspire protests and public outcry and the power of civic engagement, in terms of halting or delaying the processes of oil and gas development, should not be underestimated.

A third hindrance comes from the friction caused when regional interests collide with those of the Federal government. The people and local governments of Alaska, for example, are increasingly interested in mineral and oil extraction to boost local employment levels and tax bases. Washington, D.C., however, is wary of the political consequences of moving forward with unpopular oil and gas projects. The deadlock between these two competing interests constitutes yet another hindrance for the rapid petroleum development in the Arctic.

Although the Arctic undoubtedly contains a vast amount of natural resources, its status as a “new energy province” should not go unquestioned. As highlighted, there are significant economic and political factors that need to be considered before Arctic oil and gas development becomes a reality. Canada takes over the chair of the Arctic Council in May of this year, followed by the United States in 2015. Awareness of these issues is therefore essential, as the debate on drilling for oil and gas in the North American Arctic will only intensify in the future.

This article was first published in The Fletcher Forum of World Affairs and is re-published here with permission.

It’s not just the Market – Drivers of Arctic Interest

by Kathrin Keil The recent debate about a rush for the Arctic’s resources has primarily focused on the economic benefits, especially from hydrocarbon revenues in a situation of sufficiently high international commodity prices for oil and gas. The prospect of increasing energy demand in a world dependent on fossil fuels would spur hydrocarbon exploitation in the High North. 

And indeed, the instable situation in the Maghreb countries and the debate surrounding nuclear energy after the Fukushima accident have already resulted in increasing oil and gas prices, which is a crucial factor for the exploration and development of Arctic oil and gas resources. Energy companies respond to high oil and gas prices with an increasing interest in developing new discoveries, and the higher the prices, the more companies are willing to invest in exploration and exploitation activities even in inhospitable and remote regions like the High North.

For example, Russian oil firms are responding to the recent oil price increase by massively increasing their oil exports. Deputy Energy Minister Sergei Kudryashov is quoted to have said that Russia had exported 3 million tons of oil products in the first four months of 2011; the same amount which has been exported in all of 2010. This has even led to a gasoline shortage in some parts of Russia where fuel prices are kept low by the government due to the upcoming parliamentary elections in December 2011.

Also Norway’s Statoil has benefitted from higher oil and gas prices. As a press release from the company reads, Statoil’s first quarter 2011 net operating income was NOK50.7 billion (approx. €6.4 billion), which amounts to a 28 percent increase compared to NOK39.6 billion in the first quarter 2010. This is mainly due to a 33 percent increase in average oil prices and 20% increase in average gas prices since 2010.

Finally, Russia’s Gazprom had a record profit in 2010 of nearly one trillion rubles (RUB981 billion, up 27 percent from 2009 levels) or approximately €24.2 billion thanks to high prices, a higher profit than ExxonMobil or Chevron. But also ExxonMobil’s and Chevron’s earnings rose substantially, up 57 percent from 2009 for ExxonMobil ending 2010 with $30.5 billion (approx. €20.4 billion), and up 81 percent for Chevron to $19 billion.

While oil and gas prices impact the development of Arctic resources, this is by far not the whole story of the political economy of Arctic resource development, as Oran Young and Gail Osherenko reminded us already in 1989; rather, “governments regularly experience powerful incentives to encourage or discourage Arctic development, incentives that are not based exclusively on world market prices” [1]. 

A vivid example is Greenland where the increase of revenues from the island’s resources provides the possibility of independence from Denmark. Additionally, general economic development and investments in new industries such as agriculture could reduce Greenland’s dependency on foreign imports. So although economic gains from Arctic resources play a huge role for Greenland, they are nevertheless a means to a higher end.

The Canadian government’s main drive to encourage Arctic development is often connected to the higher aim of securing Canadian sovereignty in the Arctic. In other words, Arctic exploration projects are encouraged in order to prove Canada’s effective occupancy of its vast Arctic territory.

For the US, Alaskan resource exploitation is often interpreted as a means to reduce the country’s dependency on foreign oil imports. In 2010, about 49 percent of the petroleum consumed was imported, showing a high dependence on foreign petroleum. President Obama is under increasing pressure to boost domestic oil production and in March 2011 he set a target of reducing foreign oil imports by a third by 2025.

Both the US and Canada have strong incentives to boost development in their Northern regions in order to improve the economic and social conditions in these often remote communities, for example through the creation of jobs and better education and social welfare systems, which in turn pay out again in form of increased tax revenue.

In short, many Northern development projects would not have been implemented on the basis of strict market signals without government support, for example in form of subsidies or tax breaks. A recent example is Russian plans for a comprehensive package of tax breaks and other benefits for companies operating on the Russian continental shelf in order to attract and facilitate investments in the Russian North.

Also broader interests exist that boost Arctic development, especially concerning the future energy mix. Arctic energy resources are expected to provide compensation for decreasing production of nuclear energy in some, especially European, countries in response to the Fukushima nuclear power plant disaster in Japan following a severe earthquake in March 2011. If a number of countries decide to reduce or even phase out their nuclear power programs, other energy resources like natural gas, also from the High North, could replace nuclear energy.

In conclusion, the drivers of Arctic development are manifold and while oil and gas prices surely have a strong role to play, other factors can also trigger Northern activities. It is in any case important to be aware of more country-specific interests and incentives in order to understand the dynamics of Arctic development.

sources:

[1] Osherenko, G., Young, O. The Age of the Arctic, http://books.google.com/books/about/The_Age_of_the_Arctic.html?id=tdbLWUV1qKQC

Cairn Energy Abandons Second Well on West Coast of Greenland

by Malte Humpert Cairn Energy, an Edinburgh-based oil and gas explorer, announced that it is abandoning its Gamma-1 exploration well off the west coast of Greenland. The failure to find oil or gas represents the second setback for Cairn this year. It also drew a blank at its southern well LF7-1 and suspended work on its AT7-1 well. Furthermore, equipment used on what was thought to be its most promising well, Delta 1, is scheduled to move further south to complete drilling operations at AT7-1, after Delta-1 "encountered several hundred meters of tertiary volcanic section" and shows only minor hydrocarbon indications. In total Cairn plans to drill five wells in the Arctic this summer.

Cairn, which is investing around $600 million this year into its Arctic drilling operations, is leading the charge into offshore oil exploration in Greenland. Even prior to the latest setbacks the company announced that it hopes to bring in a partner to help with its Greenland operation. Exxon Mobil, Husky Energy, and Chevron also have plans to begin drilling above the Arctic Circle.

The Scottish oil and gas explorer started exploration in the Arctic during the summer of 2010 but failed to find oil or gas during the narrow three-month window when weather conditions in the harsh Arctic environment allow for operations to take place.

In addition to representing a significant capital investment, Cairn's Arctic operation has been the target of extensive protests by environmentalists, primarily Greenpeace, which may lead to irreversible damage to Cairn's reputation. Environmental activists managed to board the company's drilling equipment during the summer of 2010 and 2011 to highlight their opposition to drilling operations in the fragile Arctic ecosystem. Greenpeace argues that even a minor oil spill would have devastating consequences and would be impossible to clean up due to a lack of infrastructure and equipment above the Arctic Circle.

Cairn's Arctic operations serve as an example of the continued challenges future oil and gas exploration in the High North will face. Despite continued melting of sea ice and strong climatic warming in the Arctic working conditions will remain challenging even during the short summer season. The high capital costs of developing a field in the extreme Arctic environment far removed from existing infrastructure and consumers may continue to represent a key obstacle for an Arctic exploration bonanza to materialize in the near future. The development of the Shtokman field in Russia's part of the Barents Sea has been delayed since 2006 and was postponed by another 3 years in February 2010.

Exxon Mobil's deal with Russia's largest oil producer OAO Rosneft earlier this month exemplifies the vast capital investments necessary to develop offshore oil and gas resources in the Arctic. According to Prime Minister Putin the total investments envisioned under the agreement could reach $500 billion, of which $200-300 billion would be direct investments in the region.

ExxonMobil Gains Access to Arctic Oil and Gas Reserves in Deal with Rosneft

by Malte Humpert Exxon Mobil, the world's largest company, and OAO Rosneft, Russia's largest oil producer, signed a deal to develop oil and natural gas reserves in the Russian Arctic. The two companies plan to invest an initial $3.2 billion developing East Prinovozemelsky Blocks 1, 2, and 3 in the Kara Sea. 

The total investments envisioned under the agreement could reach $500 billion, of which $200-300 billion would be direct investments in the region. According to Prime Minister Putin "new horizons are opening up. One of the world's leading companies, ExxonMobil, is starting to work on Russia's strategic shelf and deepwater continental shelf." He ensured full support of the Russian government and welcomed the Texas-based company as a "reliable, strategic, and good partner." 

The plan appears to supersede a now-defunct partnership between Rosneft and BP. The British oil company's attempt to gain access to the Arctic through its joint venture TNK-BP was blocked by stakeholders earlier this year. 

As part of the deal Rosnet will be granted access to some of the Exxon's American assets and gain experience in deep-water exploration and the extraction of shale gas. Exxon's expertise in developing unconventional natural gas reserves may have played a crucial role in getting access to the Arctic. Exxon acquired XTO Energy, the largest producer of natural gas in the U.S., for $31 billion in 2009 and gained access to the company's formidable expertise and experience in hydraulic fracturing, a process used to extract shale gas out of tight rock formations. 

A number of leading oil companies have been vying to gain access to yet untouched oil and gas reserves in the Arctic as access to reserves in the Middle East, e.g. in Saudi Arabia, has been getting harder for foreign oil companies and few easy to exploit hydrocarbon reserves remain. 

The Kara Sea, where the two companies will begin exploration, may hold as much as 100 billion barrels of oil equivalent. This part of the Arctic Ocean has become the focus of attention as sea ice continues to recede earlier during the year allowing for less challenging drilling operations. 

Despite the rapid melting of sea ice, however, conditions vary starkly from year to year and oil and gas platforms across the High North are built to withstand significant ice flows. Rosneft has been developing the Prirazlomnaya Offshore Ice-Resistant Fixed Platform (OIRFP) and expects to need at least a dozen such platforms by 2030.