Iceland is offering its first ever tender for acreage on the Jan Mayen Ridge northeast of its coast in the Atlantic. (Image courtesy of Iceland National Energy Authority)

Iceland has solid leads for new field exploration northwest of its Atlantic shelf. The Iceland Exploration Conference 2008 was held in Reykjavik on September 4-5 to announce the country’s tendering of exclusive exploration licenses in January of 2009. The acreage is in what is known as the Dreki area, which lies on the Jan Mayen Ridge northeast of Iceland.

Seismic surveys and other geophysical measurements indicate that commercial quantities of oil and gas could be found in the Dreki Area. Two major sources for 2-D seismic data are available for the region. The Norwegian-Icelandic governmental surveys from 1985 and 1988 are being made available for free through Norway’s National Petroleum Directorate. The seismic data totals 3,200 miles (5,150 km) with some refraction profiles, magnetic data, and gravity data. Wavefield InSeis also has 1,740 miles (2,800 km)of proprietary 2-D seismic shot in 2001, and an additional 538 miles (850 km) of 2-D from its infill survey this summer. According to Kristinn Einarsson, the Icelandic National Energy Authority’s Hydrocarbon licensing coordinator, there is no seismic data currently available for frontier leases.

The Jan Mayen Ridge is a sliver of continental crust extending from Iceland to Jan Mayen Island. Data indicates sedimentary strata pre-date the opening of the Norwegian-Greenland Sea. Source rocks are deemed comparable to East Greenland with several potential reservoir rocks, including submarine fans with both structural and stratigraphic traps.

This is Iceland’s first exclusive licensing round, so there are no previous or current exclusive operators, but several international companies have already shown keen interest in explorations in the Dreki Area.

The total acreage on offer covers 16,486 sq miles (42,700 sq km) divided into more than 100 reference blocks that cover approximately 151 to 154 sq miles (390 to 400 sq km) each. “The licenses will not be restricted to exact blocks or multiples thereof; the shapes will be allowed to be arbitrary,” Einarsson explained. The blocks lie 100 to 200 miles (161 to 322 km) offshore Iceland’s northeast coast with 80% of the area in water depths ranging from 3,281 to 6,562 ft (1,000 to 2,000 m).

The terms for the lease round are still under consideration, but they will be consistent with EU legislation as Iceland belongs to the European Economic Zone, Einersson said. “The bill on taxes to be passed has not yet been presented to our parliament,” he said.

A recommendation document submitted by the National Energy Authority in July 2008 calls for taxes to be structured in a competitive form comparable to neighboring countries such as Norway, Faroe Islands, Canada, Ireland, and Greenland. The Ministry of Finance also recommends that general corporate income tax, which is due to be lowered to 15% by the end of 2008, should apply to petroleum companies with no special deduction rules. A progressive processing tax is also included in the recommendation, which will be applied as follows:
• No tax on less than 50 million boe/year;
• 2.5% on 50 to 100 million boe/year;
• 5% on 101 to 200 million boe/year; and
• 7.5% on more than 200 million boe/year.

A special hydrocarbon tax has also been recommended to replace the processing tax when gains from a petroleum resource reach 20%. The deduction rules governing the hydrocarbon income tax are decidedly more beneficial for companies than those governing general corporate income tax. The special hydrocarbon income tax could be progressive as follows:
• 20% tax on gains from 20 to 25.0%;
• 25% tax on gains from 25.1% to 30.0%; and
• 40% on gains above 30.0%.

The licensing round opens Jan. 15, 2009, with a tentative deadline for applications of April 15, 2009. Assessment of applications and negotiations is expected to take at least two to three months. The licensing will be carried out on an open-door policy with exclusive licenses awarded for durations of up to 12 years. The period may be extended to a maximum of 16 years. Following a successful exploration program, production licenses may be awarded for up to 30 years. Iceland is welcoming joint venture applications, noting that licenses are fully transferable pending official approval. Awarded licenses may cover one or more blocks or partial blocks.
For more details on Iceland’s first license round visit www.nea.is.