Offshore Drilling To Open In... Greenland

If we can’t get permit in the gulf I guess some of us will soon be heading to Greenland:

Greenland is demanding that oil companies bidding to drill in huge areas of its Arctic waters each pay an estimated $2bn (£1.25bn) upfront “bond” to meet the clean-up costs from any large spill.

The condition, which is thought to be the first of its kind anywhere in the world, will please environmentalists and could encourage other governments to follow suit in the wake of BP’s Gulf of Mexico disaster. Half a dozen energy companies – thought to include Shell, Cairn Energy, Statoil, the Danish companies Dong and Maersk Oil – are in negotiations with the Greenland government about the licensing round, the largest for years.

They are bidding for the right to drill across about 50,000 square kilometres of unexplored waters, much of it in deep water and all in harsh conditions. The government had planned to announce the winners in August, but arguments over the requirement to pay a bond has delayed the process. Intensive negotiations are under way and the winners could be announced as early as next week.

The payment – either in the form of a parent company guarantee for the larger companies or a straight advance – would have to be made once companies were awarded a licence to explore a block. This is despite the fact that actual drilling would not take place for another three or four years because of the mapping and geological preparatory work that would have to be carried out.

Such a requirement could exclude smaller deepwater exploration companies that have less financial clout because they do not bring in their heavyweight partners until they start drilling. Companies that have bigger balance sheets and less deepwater expertise could be favoured in the process. No final decision has been made on the bond payment requirements but it seems likely that it will remain in place, despite some companies’ protests.

Negotiations have been complicated by the unpredictable relationship between Greenland and Denmark. Greenland is a self-governing territory of Denmark, which is responsible for its foreign affairs and must sign off on any oil contracts.