Faroe Islands struggle for boundary

A long-standing boundary dispute between Britain and the tiny Faroe Islands in the north Atlantic is blocking the opening of potentially rich deep-water areas to oil exploration.
But island officials say the conflict over the demarcation line will not stop other areas east of the Faroes being offered next year for oil development, which they hope will be the salvation of their failing economy.
A first licensing round should begin in spring 1998, with oil companies keen to secure deep water concessions in one of the last major unexplored regions of northern Europe.
"We're aware a number of companies see this as a golden opportunity to get some good acreage and maybe make some large finds," said Heralvur Joensen, legal adviser to the Faroese Petroleum Administration.
Britain and the Faroe Islands, which have autonomy from Denmark in sub-sea coastal matters, cannot agree where to draw the dividing line through the "White Zone" -- disputed territory midway between the Faeroe and Shetland Isles.
Joensen said the Faroes were arguing for a median-line division while Britain sought a greater share on the basis of Scotland's more lengthy coast-line, a theory known as coastal disparity.
The financial stakes are high. British Petroleum's 200 million barrel Foinaven and 425 million barrel Schiehallion discoveries are on the fringe of north-western British waters and rumours abound of undeclared finds extending into the "White Zone."
If the line is unsettled by next year some of the juiciest underwater terrain may remain off-limits. "We would like to include 'White Zone' areas in the licensing round as that would add to the interest," said Joensen.
"We see the Faroes as important to us," said a BP spokesman in Aberdeen, "but equally we made it clear our interest depends on the (licence) blocks that are offered."
The oil majors have already conducted seismic studies, but an underground layer of volcanic basalt around the islands prevents easy analysis, despite the use of innovative two-boat seismic techniques.
The 44,000 Faroese hope exploratory drilling will prove the existence of large reserves that by the middle of the next decade might rescue their impoverished economy.
Over-fishing has crippled the islands' main industry over the last five years and they depend on one billion crowns subsidy from Denmark.
In preparation for the licence round some 25 oil companies are due this month to sign an accord to carry out an environmental study of ocean areas around the islands.
But while the oil companies are interested in the Faroe Islands as part of their global risk-spreading strategies and consortia have already formed to bid for opportunities, analysts caution that exploration work will be slow.
"There are still huge amounts of acreage around Britain, Norway and Ireland to be drilled and appraised," said Steve Scullion of analysts Wood Mackenzie. Rig shortages and better deep water prospects elsewhere will limit activity.