Faroe Islands dream of enjoying oil riches

Jul 04, 2007 02:00 AM

The scene looks nothing like a Middle East capital: on the outskirts of this sleepy fishing town of 15,000, men mow grass roofs on their houses while sheep roam freely on steep, rocky hills.
Yet Torshavn, the capital of the Faroe Islands, dreams of becoming the Kuwait City of the North -- enjoying oil riches that would free these wind-swept North Atlantic volcanic rocks from depending on fish, sheep and ruler Denmark for survival.

Energy companies are the only foreigners who spend big money here, shelling out more than $ 50 mm (£ 24.8 mm) per well to seek oil and gas under the hard basalt sea floor. With oil prices around $ 70 per barrel, the expense is justifiable to shareholders, as long as there is oil to be found.
However, several dry wells have tempered oil companies’ initial enthusiasm for exploration here and experts say 2007 could make or break the Faroes’ potential oil fortune.

An autonomous Danish territory, home to about 50,000 people and 75,000 sheep, the Faroe Islands liebetween Scotland and Iceland. Denmark handles their defence and foreign policy and pays a yearly grant that helps keep the independence movement muffled.
In 2000, the first round of exploration licensing aroused great expectations as 12 oil companies including Shell, BP and Chevron snapped up the rights to drill in waters around the Faroes. But only one of five wells drilled so far has found oil, and even that discovery was not commercial.

Danish subsidies have helped pay for two underwater tunnels, which together with several bridges connect six of the 18 islands. Denmark also educates young Faroese for free in its public universities. A planned referendum on independence was shelved in 2001 after Denmark said it would halt aid within four years if voters favoured it, while a 2004 vote ended in a draw.
But the pace of oil exploration has slowed down, and this year BP will drill only the second well the Faroes have seen in four years. The results of that and the level of interest companies show in a third licensing round this autumn should be a good indicator of the future of oil exploration in the Faroes.

The question is which oil company will have the patience to stick it out until then. Some have already relinquished exploration licenses awarded in the first round and backed out of promises to drill more aggressively here, even as new oil discoveries were made in UK waters, just beyond the border.
Most Faroese speak fluent Danish, but are quick to point out their unique culture. They are descendants of Viking settlers from the 9th century and speak a language derived from Old Norse.

The Faroese economy is booming and the islands are fully employed. But the government, remembering past recessions caused by cyclical downturns in the fishing industry, which accounts for 97 % of exports, wants to diversify the economy.
A planned referendum on independence was shelved in 2001 after Denmark said it would halt aid within four years if voters favoured it, while a 2004 vote ended in a draw.

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