Greenland-Hydrocarbon Licensing Opportunities

"Early entrants in frontier basins can become Basin Masters and offer shareholders transformational performance", or so said Dr Mike Watts of Cairn Energy recently in relation to Greenland. A US Geological survey, carried out in 2008, estimated that Greenland may have oil reserves of up to 50 billion barrels.

The regime

Greenland is a self-governing, currently Danish province, which increased its political autonomy following a referendum in 2008. Increasing hydrocarbon revenues are likely to also increase economic independence and may reduce the current Danish block grant.

The Greenland Government passed a new Mineral Resources Act ("Act") which came into force on 1 January 2010. The Act gives exclusive power to the Greenland Government over decisions relating to mineral resources in Greenland (replacing previously joint Greenlandic-Danish administration).

The Bureau of Minerals and Petroleum ("BMP") is the Greenlandic body which will continue to manage mineral resource activities in Greenland, including the administration of licences.

Licensing rounds

In October 2009, the BMP, under the old regime of the Mineral Resources Act 1998, invited companies to apply for hydrocarbon exploration and exploitation licences for the offshore areas in Northwest Greenland (the Baffin Bay Area) and in Northeast Greenland (the Greenland Sea Area) (together "Areas"). The application procedures and standard licence terms issued under the old regime continue under the new Act.

The Areas were selected following completion of a strategic environmental impact assessment to ensure that hydrocarbon activities can be conducted on an environmentally sustainable basis. Additionally, the Areas were subject to preliminary exploration under the Kanumas project by the Kanumas Group which also confirmed the presence of large hydrocarbon deposits.

The Kanumas Group

The Kanumas Group comprises: Statoil Hydro ASA, BP Exploration Operating Company Limited, Esso Exploration Greenland Limited, Chevron East Greenland Exploration A/S, Shell Kanumas A/S, Japan Oil and Gas and Metals National Corporation. The Kanumas Group was granted a preferential bidding right in subsequent licence tenders over the Areas (in recognition of its earlier exploration commitments).

The Baffin Bay Area – timetable

As the Kanumas Group did not exercise its preference right over the Baffin Bay Area, the licensing round for the Baffin Bay Area was subject to an open tender.

The prequalification round for...