Tuesday, 13 September 2011 15:23
In 2008, the USGS (United States Geological Survey) Circum-Arctic Resource Appraisal found that the waters off Greenland could potentially harbor up to 52 billion barrels of oil equivalent, including natural gas. Over half of those resources were estimated to lie in the East Greenland Rift Basins, to the northeast of the island. This year, Cairn has been drilling in Disko West, off of Greenland's west coast. Neither the Gamma-1 well in the Eqqua block nor the Delta-1 well in the Napariaq block have yielded any promising results. The Gamma-1 well reached total depth without encountering any hydrocarbon results, so it will soon be plugged. The Delta-1 drill has yet to reach total depth, but the rock is thicker than expected, and "only minor" signs of oil or gas have been encountered.
Sanjeev Bahl, an analyst an Numis Securities, wrote to investors about Cairn's exploration activities,
"Two exploration prospects remain in the 2011 Greenland programme, however, we conservatively assume that the entire $630m programme is written-off."
This assessment could be a bit premature, as Cairn's drilling ships will now move south to the Atammik block, where they will drill the final two wells of the company's 2011 program. CEO Simon Thomson stated,
"We remain focussed on the potential of our multi-basin position in Greenland."
Bad news for Greenland
Still, the news is bad for Cairn and its shareholders, with company shares down 8.8% as of this morning. But the news is also bad for Greenland. Though it has gained more autonomy from Denmark in recent years, it is eagerly hoping that the black gold off its shores will finally grant it full sovereignty. Greenland receives a subsidy of DKK 3.2 billion ($584 million) from the Danish government each year. Fishing contributes approximately DKK 2.0 billion ($365 million) to the economy, while tourism adds some as well. However, there could be up to 17.5 billion barrels of oil (not including natural gas) in the three areas around the island studied by the USGS [1]. As a very rough estimate, with oil at $112 a barrel today, the oil deposits alone could be worth some $210.3 billion dollars. Greenland's Raw Minerals Directorate reports that one successful oil strike could generate around DKK 10 billion ($1.8 billion) a year.
Oil and independence
All in all, these figures show that even just one successful oil well could possibly produce the equivalent of three annual subsidies. It's no wonder that last month, Prime Minister Kuupik Kleist said in an interview, "We claim our right to economic development, and we claim our right to be independent from former colonial powers." Greenland has almost 58,000 people, of which 87% are Inuit. Should Greenland become independent, it would certainly shake up the dynamics of the Arctic to have a state with a majority indigenous population. Perhaps then, the Inuit, at least in Greenland, would earn some of the negotiating power they strive for. But first, Cairn – or any other oil company, for that matter – has to strike gold in Greenland, and the prospects at this stage look dim.
[1] Some of these areas overlap with Canadian territory, so the figures are likely overestimating the resources within Greenland's waters themselves. The map is available here.
News Links
"Cairn provides update on drilling campaign offshore Greenland," Offshore Energy Today
"The struggle for Greenland's oil," Financial Times
"Cairn Energy out in cold as Greenland drilling disappoints," Proactive Investors
