Iceland has issued the first ever licences for frontier deepwater exploration activity in Arctic waters bordering the maritime boundaries between itself and Norway.

The Icelandic National Energy Authority (Orkustofnun) has signed and issued two licences for initial activity in the Dreki area, with Norway’s state-owned Petoro AS also to be a participant in both. Featuring water depths ranging from 1,500-2,500 m (4,921-8,202 ft), one licence was granted to a consortium of Faroe Petroleum Norge AS, Iceland Petroleum and Petoro Iceland, with another going to Valiant Petroleum, Kolvetni and Petoro Iceland.

The Norwegian Parliament has also approved the decision on its participation via Petoro AS, in accordance with an agreement between the two countries dating back to 1981 when a dispute over the area was formally resolved.

Faroe Petroleum will be the operator of its licence with a 67.5% share, with Íslenskt Kolvetni holding 7.5% and Petoro Iceland 25%. Valiant Petroleum will operate the other licence with a 56.25 % share, with Kolvetni holding 18.75 % and Petoro 25 %.

The licences both lie more than 200 km offshore in a harsh Arctic environment, although the wave heights are less than that experienced off the west coast of Norway.

The northern part of the Dreki area features the Jan Mayen Ridge, which is thought to have potential for hydrocarbon accumulations because of its geological similarity to hydrocarbon basins that were its next door neighbours prior to the opening of the NE Atlantic Ocean basin, including basins offshore western Norway, Shetland and the North Sea.

Iceland provisionally awarded exploration licences in the Dreki area off Jan Mayen island to UK independents Faroe and Valiant last month in its second licensing round, which followed an earlier one aborted in 2009 during the financial crisis.

The Norwegian Petroleum Directorate estimates the area could hold between 250-500 MMbbl of oil, and up to 100 Bcm of gas.

Faroe says the licences are extensive, encompassing seven blocks located to the south of the Jan Mayen Ridge, which lies inside the Arctic Circle but in ice-free waters off the north east coast of Iceland. The company has mapped “several very large structures” within the area and is keen to explore and derisk these prospects with its proposed work programme.

-Faroe is still awaiting the results of its BP-operated deepwater North Uist well west of Shetland (6.25% interest), which are expected imminently.