The Arctic: Oil's last frontier

Twenty-five percent of the world's untapped reserves could lie near the North Pole, but politics could prove harder to crack than the ice.

By Steve Hargreaves, CNNMoney.com staff writer

October 25 2006: 8:12 AM EDT

NEW YORK (CNNMoney.com) -- Nothing says hot like an Arctic bidding war.

Last spring Canada Southern Petroleum, a company with significant reserves inside the Arctic Circle, received a takeover offer of $7.50 per share, nearly a 60 percent premium on its stock price. By the time the company was sold four months later to another Canadian firm, it went for $13.10 a share.

While some of that excitement may have centered on the company's proximity to Canada's tar sands project in Alberta, it was also cashing in on its position in one of the last places on earth thought to hold significant amounts of untapped oil and gas.

While there is drilling in the Arctic on or close to shore, the sea under the polar cap is unlikely to remain largely untapped for long - governments and corporations are racing to carve up the Arctic oil pie.

With it comes the sticky and as yet unanswered political questions over which countries have rights to which fields and whether this development can be pulled off without too much environmental and social damage.

What's at stake

It's hard to say how much oil and gas lies buried underneath Arctic ice.

One study by the U.S. Geological Survey (USGS) said 25 percent of all untapped reserves in areas known to contain oil are found north of the Arctic Circle. That number could be even higher as the study didn't take into account unexplored regions, which most of the Arctic is.

"It's very likely there's a great deal of oil and gas out there," said Don Gautier, a research geologist at USGS who is leading an effort to put a number on those reserves. "The real possibility exists that you could have another world class petroleum province like the North Sea."

A new petroleum province will likely be needed if the world is going to both replace the output from current fields, many of which are declining, and keep up with worldwide oil demand that is expected to surge by more than 50 percent over the next 25 years. This underlay the tripling of oil prices since 2002.

This demand has led all the major players to the game.

BP (Charts), which operates the huge Prudhoe Bay field in Alaska, signed a $17 billion exploration agreement with Russia.

Statoil, Norway's state oil company, considered to have some of the best cold-weather expertise in the business from its North Sea operations, is well positioned to explore massive deposits believed to lie north of Norway in the Barents Sea.

Royal Dutch Shell (Charts), ExxonMobil (Charts), Chevron (Charts) and ConocoPhillips (Charts) have interests as well.

The hard part

Getting this oil won't be easy, and problems start before drilling even begins.

Unlike Antarctica, a landmass whose territory is shared by all the world's nations, no such treaty exists in the Arctic. So questions over who can drill where, who can use which shipping lanes and who gets what royalties are all unanswered.

Several nations that border the Arctic are signatories to a treaty that gives them exclusive control over coastal waters extending 200 miles from shore.

But under this treaty, it is possible to file a petition to extend that range beyond 200 miles, and that's exactly what several countries have done.

Robert Corell, a member of the multigovernment forum the Arctic Council, said Russia basically drew a line from one tip of its territory to the other, running through the North Pole. This would effectively give Russia exclusive rights to nearly half the area.

A senior State Department official, speaking on condition of anonymity, said the Russian claim wasn't quite that large, although he did say it extended well beyond the 200-mile zone.

The official also said Denmark, Canada and Norway have filed claims to extend their territory as well and that the United States would soon follow.

He said the final outcome, which will be mediated through the United Nations, is anybody's guess.

It's also reasonable to think that other countries that don't have coastal territory bordering the Arctic - which would be every country besides Russia, the United States (via Alaska), Canada, Norway and Denmark (via Greenland) - would support a shared system like Antarctica.

"There's remarkably few agreements up there between any of the bordering nations," said Corell. "There are going to be some geopolitical issues on the plate."

Then there's the matter of drilling itself. The Arctic ice pack, three to 10 meters thick and always shifting, poses significant challenges: think of those crushed ships from the early days of exploration.

The solution involves heavy reinforcement of rigs or drill ships and using steel that is less brittle, as normal steel can more easily break at temperatures below 20 degrees Fahrenheit, said Alan Spackman, director of offshore technical and regulatory affairs for the International Association for Drilling Contractors.

"They're made horrendously strong," said Spackman. "The common rigs working in the Gulf of Mexico wouldn't survive."

Whether even the reinforced rigs survive is a concern for environmentalists, who fear the ice could cause a spill by damaging equipment and make a cleanup next to impossible.

Corell said a tanker spill in the region would be unlikely, as most would be double hulled. It's the hundreds of other ships required to support a drilling effort that are more of a concern, not just for the environment but for the effect that industrializing the area would have on the way of life of the region's traditional inhabitants.

And there's also a feeling that drilling in the Arctic, made possible largely by global warming at least partially caused by burning fossil fuels, is perverse.

"It just feeds a vicious cycle," said Athan Manuel, director of lands protection for the Sierra Club.

Manuel said meeting the world's energy needs should first start with a serious commitment to conservation combined with expanded use of cleaner technologies.

"More drilling is not the solution," he said. "We think this is a terrible idea."

========

Vast oil potential in Arctic, new data says

Randy Boswell ,  Canwest News Service

Published: Thursday, March 20, 2008

A U.S.-based company that has controversially laid claim to nearly all of the Arctic Ocean's undersea oil said Thursday that new geological data suggests a "potentially vast" petroleum resource of 400 billion barrels.

That figure is backed by a respected Canadian researcher who recently signed on as the firm's chief scientific adviser.

Las Vegas-based Arctic Oil & Gas has raised eyebrows around the world with its roll-of-the-dice bid to lock up exclusive rights to extract oil and gas from rapidly melting areas of the central Arctic Ocean, currently beyond the territorial control of Canada, Russia and other polar nations.

The company, which counts retired B.C. senator Edward Lawson among its directors, has filed a claim with the United Nations to act as the sole "development agent" of Arctic seabed oil and gas.

The firm acknowledges that the Arctic's petroleum deposits are the "common heritage of mankind," but has argued that the polar region requires a private "lead manager" to organize a multinational consortium of oil companies to extract undersea resources responsibly and equitably.

The Canadian government has dismissed the company's "alleged claim" over Arctic oil as having "no force in law," but experts in polar issues have raised alarms about the firm's actions, saying they could disrupt efforts to create an orderly regime for exploiting resources and protecting the Arctic environment under international law rather than a marketplace model.

In its latest statement about the polar seabed's "enormous reserve potential" for petroleum deposits, Arctic Oil & Gas cites recent scientific evidence that huge, floating mats of azolla - a prehistoric fern believed to have covered much of the Arctic Ocean during a planetary hothouse era about 55 million years ago - decomposed soon after the age of the dinosaurs and exist today as "vast hydrocarbon resources" trapped in layers of rock below the polar ice cap.

Bujak, a former geoscientist with the Geological Survey of Canada who now works as a private consultant in Canada and the U.K., is described in the Arctic Oil & Gas statement as confirming the "highly probable validity" of recent research pointing to rock layers "extremely rich" in "hydrocarbon precursors" throughout the Arctic basin.

Bujak, who previously worked for PetroCanada as a petroleum geologist, co-authored a landmark 2006 study in the journal Nature that first detailed the ancient azolla explosion that shows up today in Arctic seabed core samples.

He is also scheduled to describe the potential Arctic oil jackpot as the keynote speaker at a Calgary meeting of the Canadian Society of Petroleum Geologists in May.

"We are extremely fortunate to have brought on board an expert of the calibre of Dr. Bujak," company CEO Peter Sterling says in the statement. "His expertise and his connection to other geoscientists allow us to validate data and confirm its utility in our pursuit of the vast hydrocarbon resources that we intend to successfully locate and extract in the 'Arctic Commons'."

Neither Bujak nor Lawson could be reached for comment on Thursday.

Scientists have predicted that global warming could leave the entire Arctic virtually ice-free for months at a time within 20 years. That prospect has hastened a scramble among nations with a polar coast - namely Canada, Russia, the U.S., Norway and Denmark, which controls Greenland - to try to strengthen their scientific claims under the UN Convention on the Law of the Sea to extended territorial sovereignty over the Arctic Ocean floor.

A report issued last week by the European Union's top two foreign policy officials also highlighted the looming international struggle over Arctic oil deposits.

Authored by Javier Solana, the EU's foreign policy chief, and Benita Ferrero-Waldner, Europe's commissioner for external relations, the study pointed to "potential consequences for international stability and European security interests" as the retreat of Arctic ice makes shipping and oil and gas exploration a reality in the region.

Noting the "rapid melting of the polar ice caps," the report noted that "the increased accessibility of the enormous hydrocarbon resources in the Arctic region is changing the geo-strategic dynamics of the region."

The EU report was just the latest in a string of recent warnings about potential clashes over Arctic resources - including a prediction from former U.S. Coast Guard Cmdr. Scott Borgerson of possible armed conflict between the U.S. and Canada over Arctic sovereignty.

"The United States should not underestimate Canadian passions on this issue," Borgerson, a fellow at the influential Council on Foreign Relations, wrote in an article in the latest issue of Foreign Affairs magazine. "Unless Washington leads the way toward a multilateral diplomatic solution, the Arctic could descend into armed conflict."

© Canwest News Service 2008

============

Private 'claim' to High Arctic resources both funny and dangerous: experts

Feb 28, 2008

While nations ringing the North Pole mobilize icebreakers, put forward scientists and issue chest-thumping news releases to assert ownership of a potential energy bonanza beneath the shrinking sea ice, a former Australian miner and a retired Canadian senator have some advice for them.

Don't bother. It's already locked up.

"We claimed the rights to the hydrocarbons," said Peter Sterling of Arctic Oil and Gas Corp. from his office in Beverly Hills, Calif. "It's a prior claim.

"It's a little bit tenuous at present, but I think it will become stronger over time."

Sterling used to be involved with a number of resource and mining companies in Australia.

International law experts say the Arctic Oil and Gas "claim" for oil and gas rights on more than two million square kilometres of Arctic seabed outside the 320-kilometre limit of Canada, Russia, the United States, Norway and Denmark is comic-opera stuff. But they add there could be just enough to it to disrupt United Nations efforts to oversee orderly development of the resource and deliver it into American control.

"It's funny," said Rob Huebert of the University of Calgary. "Funny and a bit dangerous."

Sterling said the ice-covered waters of the High Arctic have never come under the control of any country and are open to claim. In May 2006, he sent a legal document to the UN General Assembly and the International Seabed Authority informing them that his company duly claims them.

Similar letters were sent to the five countries potentially involved.

Sterling said he believes his company will be bought out by a consortium of major energy companies from all five nations, giving the firms the rights to develop the resource. American companies would likely have the largest share, he predicted.

Because the resource would be outside any national jurisdiction, no royalties would be paid, although Sterling suggested the consortium would pay a 20 per cent tax to the United Nations. Tough environmental guidelines would be adopted.

That's the advantage of moving on the Arctic before the UN or national governments carve it up - setting your own tax rates and environmental rules.

"A lot of these stable countries have a tax regime where it's almost not worth going in," said Sterling, who calls the policy the UN has set up to regulate seabed mining "a mess."

He has written that allowing the UN to manage the Arctic through the Convention on Law of the Sea "would result in the gifting of America's future (Arctic-supplied) energy security and untold trillions of dollars in future UN resources taxes to a hostile and incompetent UN bureaucracy."

That's the real concern Arctic Oil and Gas poses for countries such as Canada, said Michael Byers of the University of British Columbia. Some U.S. politicians and lobbyists have long been opposed to signing any international agreement that could limit American flexibility, and Sterling provides them with an alternative.

"This is merely part of that general advocacy...they're just attempting to be spoilers," he said.

Huebert agrees.

"There will be some Americans who will say, 'That's why we shouldn't ratify (the Convention on Law of the Sea). Let's let this guy go ahead."'

Sterling says he has received a warm reception from energy companies. From the Canadian government, not so much.

"Their alleged claim has no force in law," said Foreign Affairs spokesman Bernard Nguyen.

Still, one Canadian energy company - Sterling won't say which one - is in talks for about 25 per cent of the action.

"We're just piecing that together now. I think Canada is going to lead the charge."

Retired British Columbia senator Edward Lawson is in the forefront of the action. He joined the board of Sterling's Arctic Oil and Gas earlier this month.

Lawson, who sat in the Senate for 34 years, has a background in organized labour and is described as a "humorist" in company releases. He did not respond to a request for an interview.

Momentum in the U.S. toward signing the Law of the Sea treaty is probably unstoppable at this point, said Byers, so Arctic Oil and Gas is a sideshow.

"I can't imagine that it's serious.".

Yes, it is, Sterling insists.

"(The oil) will come out. There's no question that eventually it will come out.

"It's just a question of what model is used, and I think our model is the best." 

Copyright © 2008 The Canadian Press. All rights reserved.