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Oil, Gas Producers Look to Expand Arctic Exploration

Updated June 26, 2012, 12:02 p.m. ET

By KJETIL MALKENES HOVLAND and ANNA MOLIN

TRONDHEIM, Norway—Two of the world’s major oil and gas producing nations, bolstered by big Arctic discoveries in recent years, are looking to further develop one of the world’s most remote regions as a more vibrant hub of exploration.

Norway plans to award new drilling licenses for dozens of blocks of sea acreage in icy Arctic waters as early as 2013, Norway’s oil ministry said at a conference here Tuesday. U.S. Secretary of the Interior Ken Salazar, speaking at the same conference, said the Obama administration plans to further open and develop its own Arctic areas for drilling to continue reducing that nation’s dependence on foreign imports.

The comments come amid growing appetite in recent years for the vast Arctic region as a potential source of new oil and gas resources. Although criticized for being a costly and difficult area to explore, the region north of the Arctic Circle is believed to contain about a fifth of the world’s undiscovered oil and gas, according to the most recent data. Yet the frontier remains largely unexplored.

Norway is the world’s seventh biggest oil exporter in 2010 and looks to ride a swell of interest by awarding licenses for 72 blocks or partial blocks of acreage in the Barents sea, and 14 additional locations in the Norwegian sea, Oil Minister Ola Borten Moe said. Applications for licenses are due Dec. 4, and Norway will complete the licensing by next summer.

“We are now experiencing record levels of interest in the Barents Sea,” Mr. Moe said.

Norway also will open up a research facility in one of its northernmost cities with plans to tackle the challenges involved in drilling for oil in the cold waters of the Arctic region. It will be partially funded by the oil and foreign ministries, and partially by the Norwegian oil industry.

Oil production—a key source of revenue for Norway’s $600 billion sovereign wealth fund—in Norway has been falling since 2001, and production of oil and gas combined have declined since 2004. In order to buoy revenue, new production areas are needed to replace mature sources that have passed their peak.

In the U.S., officials are accelerating efforts to stage oil and gas lease sales in the Beaufort Sea north of Alaska and the Chukchi Sea located between Russia and Alaska. Those sales, slated for 2016 and 2017, follow attempts under way by Royal Dutch Shell RDSB +0.94% PLC, ConocoPhillips COP +1.28% and others to win exploration permits, Mr. Salazar said.

“Opening up and developing our domestic resources is a priority for us,” Mr. Salazar said during an interview.

But exploitation of Arctic resources has been opposed by environmentalists. Mr. Salazar said that there will remain a 30-mile buffer in both seas to protect highly prized acreage.

Technological breakthroughs, such as “fracking,” have allowed the U.S. gas industry to expand production of shale gas, significantly reducing the U.S. need for imports. The U.S. is expected to become a net exporter of liquefied natural gas starting in 2016 and an overall net exporter of natural gas in 2021, according to the U.S. Energy Information Administration.

Write to Kjetil Malkenes Hovland at [email protected]

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