Cairn Energy, the small-ish UK oil company that had great success with its discoveries in India, has reported “lots of promise” from its exploration off the coast of Greenland, where it has more acreage than any other company.
Mike Watts, the company’s deputy chief executive, said:
“It is early days in Greenland, but everything we do is showing promise. Are the geological elements there for success? We think so.”
But how big will Greenland turn out to be?
Greenland has been very little explored for oil: just seven wells have been drilled there, six of them offshore, most of them in the 1970s.
The country is now being opened up again for exploration, and several companies, including ExxonMobil, Chevron and Husky Energy, have been taking up acreage.
Cairn’s 72,000 square km of licences, equivalent to about 250 blocks in the North Sea, give it a much larger holding than its rivals. It hopes to acquire additional acreage in Greenland’s next two planned licensing rounds, in 2010 and 2012, because “now is the time to get in there”.
Cairn sees Greenland as the equivalent of the North Sea in 1964-65: almost completely unexplored, and just beginning to be opened up. So far, all it has really done is shoot seismic surveys; it has not even properly analysed the data yet. But it wants to have some plans for where to drill by the summer.
Cairn’s problem, however, is that it is much smaller than some of the other leading players in Greenland. It has a market capitalisation of about $4bn, compared to $340bn for Exxon, and it is clear that exploration off Greenland is going to be ferociously costly, even in a post-crash world.
Sir Bill Gammell, its chief executive, says a single well off Greenland could cost $100m, although drilling several in succession could bring that down to $50m-$60m per shot. Once Cairn gets going, which could be next year or in 2011, it could be drilling half a dozen or more wells per year.
That would mean a commitment of $300m-plus annually: not out of the question for Cairn, which is spending about $900m developing its Indian fields this year, but certainly a stretch. So the company may well decide to bring in partners.
Any companies wanting to join in will have to be prepared to take a risk. As Sir Bill says, they have identified some very large potentially oil-bearing structures, which if they were full of oil could be multi-billion barrel fields. But some or all of them will turn out to be empty.
The US Geological Survey estimated in July 2008 that the eastern Greenland held 31bn barrels of oil equivalent in oil and gas, northern Greenland held 3.3bn boe, and western Greenland and eastern Canada 17bn boe. The potential does look very large.
If the oil price stays at $50, though, it may be hard to persuade anyone to take the risk of drilling. For now, the world does not need any more oil. And Greenland’s potential may remain a tantalising prospect for some time to come.