Even though some oil industry insiders are in favor of regulatory changes in the Faroes to lower financial risks in order to increase the potential for drilling action, the oil business is still very much of a patience game.

WHEN the hunt for oil & gas was initiated off the Faroe Islands in 2000 with the First Licensing Round, hopes were high that the prize would be found with ease and that commercial production would be achieved within a decade.

It turned out not to be the case. Of the three wells drilled in the first licensing round, only one encountered convincing volumes of oil in place. The Marjun-1 success came in 2001, since when operator Amerada Hess has not been back to assess the find by carrying out appraisal drilling.

Gloom rapidly descended. The bonanza that many Faroese had quietly hoped for evaporated. But at least there was some consolation.

The Faroese Parliament (Lögting) had wisely ensured that prospecting oil companies routed their logistics needs via the islands, so providing business opportunities for at least some Faroese companies during early drilling.

But no one should have been surprised as anyone who has tracked the slow-pace race that has characterized the hunt for new resources on the UK side of the Faroe-Shetland Channel would demonstrate.

That said, the fact that, last year, Total signalled the likely commerciality of the Laggan gas discovery, that ChevronTexaco made what is almost certainly a large oil find on the Rosebank/Lochnagar licence, and that, this year, BP finally brought the Clair oilfield onstream 27 years after its discovery, is surely encouraging.

Indeed the Atlantic Frontier game may be changing for the better. While the Second Faroese Oil & Gas Licensing Round was always going to be of limited appeal to oil majors because of richer pickings elsewhere, notably West Africa, it has nonetheless attracted excellent bidders. Moreover, companies like Statoil have in fact reinforced their Faroese acreage holdings.

The Second Faroese Round covered roughly 19,000 sq.km, divided into 83 full and 39 part blocks and the work programmes initially cover seismic and other surveys as well as processing and interpretation with the purpose of maturing the licences for future exploration drilling.

In Statoil’s case, the partially privatized Norwegian state company secured three operatorships and an interest in a fourth license. One of these operated licences was secured in partnership with Shell, DONG of Denmark and tiny Faroe Petroleum. This 2,084 sq.km licence, now named Sildrekin, apparently holds a number of exciting prospects including a very large lead in some 250 metres of water, which is relatively shallow for the offshore industry.

As for licence four, this is operated by ChevronTexaco and shared with Statoil 30 percent, DONG 20 percent and OMV of Germany 10 percent. What makes this one exciting is that it is adjacent to the Rosebank/Lochnagar structure where ChevronTexaco made its big oil find referred to earlier and which may have reserves of more than 500 million barrels. But this is subject to appraisal work this year and next at least.

At the opposite end of the spectrum without a doubt is Faroe Petroleum (Føroya Kolvetni), which is headquartered in Aberdeen and listed on the London Stock Exchange. Set up as a means of ensuring Faroese participation and today led by CEO Graham Stewart, FK has a bold strategy, as evidenced by its Round Two awards.

That the company’s Round One hopes were dashed when the first and only block 002 well drilled in partnership with Italian energy giant Eni proved a failure appears not to have dented FK ambitions.

Witness the acreage awarded, that is, Sildrekin and, remarkably, the Wyville-Thomson Ridge. This licence is held 100 percent by FK and contains a giant lead along the axis of this huge undersea structure.

So what is Stewart’s strategy behind such a choice? He told the writer recently: “We’ve tried to work out where the most prospective parts of the Faroese sector are and already have attractive, prospective areas.

“Wyville-Thomson … nobody has ever drilled there. It stands out like a sore thumb, being by far the largest anticline anyone’s aware of in NW Europe. BP, Shell and other big companies … they’d all love to drill it. But, because it’s so far away from anything else, they’re unable to secure management consent to attempt anything.

“We invited them all in and they very politely declined so we thought, why not go on our own … and we did. And the Faroese Petroleum Administration was happy enough with our application, work programme and commitment to getting things done, so we secured it 100 percent.

“By working at and by derisking it, as we will do by interpreting the seismic data that exists already [to build an underground picture] and then adding to that ‘2D long-offset’, which we will shoot either this year or next, we think we can probably build a case for a well … maybe in 2006. If it turned out that way, we would invite others to come in with us. We’ve already done a lot of work on Wyville Thomson and the thing about this area is that it doesn’t need the latest generation deepwater drilling unit.”

Switching to Sildrekin licence, Stewart said there was a “frenzy” to get control of that acreage. FK was lucky to get its 10 percent.

Part of the reason for this is because Statoil has a neighbouring prospect called Brugdan, which is scheduled for drilling next year and, if that works, Sildrekin may yield an even bigger prize. If Brugdan is successful, then Sildrekin could be drilled in 2007.

But there is little prospect of anyone drilling any wells in Faroese waters this year. It is understood that none are planned and, in any case, there is now a shortage of suitable rigs.

The closest prospect for drilling would appear to be the First Round licence Ann Marie, but not until 2006. It is apparently on the same geological trend as the UK sector Cambo find by Amerada Hess, also Rosebank/Lochnagar.

This has to be disappointing for the Faroese people, but part of the solution lies in their hands, argues Stewart.

“To have success in Faroe, you need to have a lot more wells drilled. To get a lot more wells drilled you need to reduce the cost. To reduce that cost you need to increase the pool of potential rigs and that means changing regulations.”

At the moment, the Faroes apply Norwegian rules to rigs, not the more lenient but still rigorous UK approach that enables older rigs to operate safely and effectively on the Atlantic Frontier.

Clearly aware of the tough ride to date, Trade & Industry Minister Bjarni Djurholm said at the 2005 Offshore Faroes conference: “We have all acknowledged that our initial expectations were too optimistic and have realized that petroleum exploration takes time. However I believe that petroleum exploration will be one of the new industries that are necessary in order to move the Faroes towards a more diversified business community.”

And there’s the dilemma. To generate tangible opportunities for the Faroese business community requires real action offshore. At least Djurholm is optimistic.

He said: “I am convinced that the seismic surveys and other work that will be carried out over the next years will mature the Faroese area, so that the license holders can proceed to drilling wells and hopefully finding commercial quantities of hydrocarbons.” The dream lives on.