State-owned China National Offshore Oil Corp., China’s largest offshore oil and gas developer, has been licensed to explore for oil resources in the Arctic, making it the first Chinese company to be granted such approval.
Orkustofnun, Iceland’s national energy authority, granted the new offshore license to Cnooc as an operator with a 60 percent share, while Icelandic partners Eykon Energy and Petoro Iceland AS hold 15 percent and 25 percent, respectively, the China Daily reported on Thursday.
Cnooc applied for the license to explore oil and gas resources in Arctic waters in June and was granted operating rights on Jan. 22. The Chinese company has been accelerating its steps in foreign offshore oil and gas businesses and last year purchased the Canadian oil and gas company Nexen Inc. (TSE:NXY) for $15.1 billion.
"The permission that Cnooc got from the Iceland government proves the Chinese energy companies' upstream exploration competence," Guo Haitao, associate dean of the School of Business Administration with the China University of Petroleum, said, according to the China Daily.
The project is still in the beginning stages and doesn't have the capacity to add to China’s oil and gas supply in the short term, Guo added. In the long term, the project will raise the level of China’s energy exploration technology as well as ensure supply through diversified resources.
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Cnooc already boasts of considerable experience in deep water exploration. In 2013, it produced 412 million barrels of oil, of which 69 million came from Nexen. The Chinese company aims to produce 422 million to 435 million barrels, which would be between 2.43 percent and 5.58 percent of year-on-year increase. Yet, as the first Chinese company to explore in the Arctic, Cnooc has much to learn.
"Cnooc will be the major operator of the project, and risks are high," Guo said.
The Arctic region has rich oil and gas resources with a proven reserve the equivalent of 400 billion barrels of oil, according to the China Daily. Exploring in the Arctic has high operation costs, long payback periods, and requires different extraction equipment than ones used in deep water, as the area has extremely low temperatures and Arctic ice.