Cash crunch ruins Iceland's hopes for exploration and production

Sep 14, 2009 02:00 AM

The global financial crisis has dealt a blow to Iceland's plans to open its frontier play to exploration and production, with all the players bidding in its debut round withdrawing their applications.
Norway-based Sagex Petroleum and Icelandic outfit Lindir Exploration, who had submitted a joint bid, bowed out. The only other bidder in the round, Aker Exploration, withdrew earlier this year, saying the move was prompted by a change in exploration strategy and its merger with Det Norske Oljeselskap.

Sagex boss Terje Hagevang said that, as a smaller player, his company could not afford shoulder the full costs -- and the risk -- of exploration in a frontier region on its own.
"We need other companies to help reduce the risks and costs," he said. Hagevang said while the global financial crisis may have had an impact on the round, he believed the taxation regime and the general licensing framework Iceland put in place may have deterred companies from bidding.
"We will consider bidding again, should there be a new round. But we would expect there to be an improvement in terms and conditions to make the risks of operating in Iceland more commercially attractive," he added.

Iceland's Natural Energy Authority (NEA) said it is currently evaluating the options for future licensing rounds. Iceland had put blocks in the frontier Dreki area up for grabs late last year, setting a bid deadline of 15 May.
The NEA said that while there was interest in the round, many players chose not to take part because of the financial crisis and the difficulty in securing cash for exploration in an untested, high-risk frontier play.

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