Recently we highlighted six huge, untapped oil fields around the world. Here is another one: the basin in the Barents Sea.In a note to clients, BofA Merrill Lynch analysts led by Hootan Yazhari estimate that there are around 100 billion barrel-of-oil equivalents (a measure that includes both oil and natural gas) that lie beneath the surface.
“The Barents Sea remains one of the last few remaining and relatively poorly understood prospective frontier hydrocarbon basins in the world,” they write.
The Barents Sea, a part of the Arctic Ocean located north of Russia and Norway, is a tough spot to extract oil from, however. It ices over in the winter, and even in the summer, floating ice does not make drilling for oil easy.
BofA explains how expensive these operating conditions can make extracting oil from the Barents:
Exploration wells in the region are typically expected to cost >US$150 million (on a dry hole basis) and due to the environmental sensitivity of the Barents Sea, operators have to conform to the highest-possible standards, which drive up costs. High transport costs to local markets (continental Europe is c. 3’000km away) and political risks related with operating in the area (particularly in the Russian side) further degrade the economics.
Outsized operating costs aren’t keeping oil companies away anymore, though. Both Norway and Russia are offering favourable tax terms to companies willing to check out the Barents Sea.
The biggest catalyst for the move into the Barents, according to BofA, is a treaty between Russia and Norway established last summer that ended a border dispute between the two countries over control of the Sea that went on for 44 years.
According to BofA, “The border treaty is economically significant, as it finally enables exploitation of hydrocarbons from this resource-rich area.”
The next step: “oil service companies will now be able to conduct geological surveys and hydrocarbons drilling.”