OMV AG (ADR) (OTCMKTS:OMVKY) (ETR:OMV) (FRA:OMV) made an announcement last week of an oil discovery in the Barents Sea in the Norwegian Continental Shelf. The discovery is a phenomenal breakthrough for the region as a whole because it points to the possibility of large potential in the area.

Wisting Central was the first well drilled in the Hoop area, where the discovery was made. The discovery marks a new exploration territory and demonstrates exciting potential in the area for other companies operating in the area. Exploration activities are currently being conducted in the area by ConocoPhillips (NYSE:COP), Wintershall and GDF Suez SA (EPA:GSZ) (OTCMKTS:GDFZY).

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Figure 1: Map of the Barents Sea

Oil Discovery
Source: Norwegian Petroleum Directorate

Oil discovery made area more valuable

The area was considered gas prone in the past due to several natural gas discoveries in the Barents Sea. The recent discovery of oil has made the area more valuable due to the differential in oil and gas pricing. “Oil production would be more lucrative than gas for the region’s exploration companies, even in an area as remote as the Barents Sea, since it requires less sophisticated infrastructure to bring it to markets,” says Philipp Chladek.

The potential of the arctic region is still uncertain as different opinion on the lucrativeness of this area exist. “A U.S. Geological Survey report suggests that 13 percent of gas and 30 percent of oil reserves yet to be discovered are in the Arctic, with oil finds biased toward North America and gas to Eurasia. Gazprom OAO (ADR) (OTCMKTS:OGZPY) (MCX:GAZP), Royal Dutch Shell plc (ADR) (NYSE:RDS.A) (NYSE:RDS.B) and BP plc (NYSE:BP) (LON:BP) plan to enter the region to explore for these resources. In contrast, a Norwegian study claims the region will only play a marginal role in global oil and gas production due to cheaper alternative production elsewhere, such as from shale resources,” reports Philipp Chladek.

Public opposition to drilling

The Barents area is a difficult exploration area because of the climatic challenges as well as public opposition to drilling in the area. Barents sea happens to be one of Europe’s last surviving pollution-free maritime habitats. Hence, oil and gas operators in the region have had to face severe criticism from the public domain and it remains a risk to operation in this area.

On the other hand, the weather and terrestrial conditions in this location are far from friendly. Companies have had to deal with extreme technical challenges to achieve drilling targets.

The size of recoverable reserves from the discovery by OMV AG (ADR) (OTCMKTS:OMVKY) (ETR:OMV) (FRA:OMV) is estimated to be between 60 and 160 million barrels of crude oil and 10 to 40 billion cubic feet of gas. OMV has a 25 percent share as an operator in the exploration license with 20 percent shares helf by Petoro, Idemitsi and Tullow each and 15 percent share held by Statoil ASA(ADR) (NYSE:STO). OMV has stakes in three other blocks besides this in the Barents Sea. OMV will drill a second well Wisting Main to further investigate prospects in the area.

Barents Sea