CNOOC seeks Arctic energy partner CNOOC is the latest of the big state-owned Chinese oil and gas entities to pursue Arctic energy supplies, putting its name forward as a partner with Icelands fledgling Eykon Energy to search for oil in waters off the north-east coast of Iceland. CNOOC follows China National Petroleum Corp (CNPC), which in March this year struck a deal with Russia's biggest oil producer, state-owned Rosneft, giving it access to potential Arctic oil fields. China, which was granted permanent observer status to the Arctic Council last month with the support of Iceland, is showing increased interested in the Arctic's mineral and energy resources, and in the possibility of using the Northern Sea Route across the top of Russia as a shorter shipping route between Europe and Asia. Iceland, which has just begun the process of opening its waters to oil and gas exploration, potentially could add billions of dollars in revenue to its tiny $15 billion economy if a commercial discovery is made. But any such windfall is some years away yet. In January, Iceland's national energy authority Orkustofnun awarded two licences in the area known as Dreki (Icelandic for "dragon") on the continental shelf between Iceland and Jan Mayen island off the coast of Norway. The Eykon-CNOOC application is in the same area. Orkustofnun held off awarding a possible third licence until Eykon could bring in an international partner deemed to have the necessary technical expertise and financial capability. Orkustofnun said on June 5 that CNOOC International's decision to partner Eykon Energy as an operator and potential licensee meant it now expected to finalise the application "in the autumn of this year," indicating a decision could be made between September and November. Despite its extremely difficult working conditions and the potential for environmental disaster, the Arctic Circle is becoming a focus for oil majors because of what is believed to be the area's vast oil and gas reserves. In 2008, the US Geological Survey (USGS) described the Arctic continental shelf as potentially constituting the "largest unexplored prospective area for petroleum remaining on Earth." Shell, ExxonMobil, ConocoPhillips, Total, CNPC, Statoil and Eni have either begun exploratory work in the Arctic Circle or plan to do so in conjunction with Russian partners such as Rosneft, Gazprom and Novatek. Onshore and offshore Russia, Alaska and areas above Norway have been the focus to date. In February this year, the Norwegian Petroleum Directorate (NPD) released the results of seismic work it carried out in 2012 in waters off the coast of Norway, extending as far as Jan Mayen island. It estimated the expected resources in the Jan Mayen area at 90 million standard cubic metres of oil equivalents (scmoe) - equal to about 566 million barrels of oil equivalents -- with an upside of 460 million scmoe and a downside of zero. It said if a discovery were made, the expected resources in the area would increase to 200 million scmoe, with an upside of 640 million scmoe and a downside of 20 million scmoe. The NPD noted that "Iceland has the right of use for parts of the shelf surrounding Jan Mayen and has already awarded production licences." A significant oil and gas discovery would be a major breakthrough for Iceland, which is slowly recovering from the 2008 banking collapse that caused economic distress to its 320,000 inhabitants and overseas investors. The country's GDP is only about $US15 billion, with most of its economic activity coming from fishing, tourism, services and three aluminium plants operated by Rio Tinto, Alcoa and Century Aluminium. Hydropower and geothermal energy provide all of Iceland's electricity needs. Under the terms of a 1981 agreement between Norway and Iceland, Norway has the right to take up to a 25 per cent share in any oil exploration licence granted. It has exercised this in the first two licences, with Norwegian state-owned Petoro taking 25 per cent of a consortium led by the UK's Valiant Petroleum (which was subsequently taken over in April by Ithaca Energy, also of the UK), and a similar stake in the second consortium led by Faroe Petroleum, which is headquartered in the Danish territory of the Faroe Islands. Petoro is expected to take 25 per cent of the CNOOC-Eykon bid if a licence is granted. Eykon Energy has no track record in oil exploration, though a spokesman for the company told The Australian it was set up in June 2012 by a group of investors with a background in energy investment and management. The company chairman, Heidar Mar Gudjonsson, and the chief executive officer Gunnlaugur Jonsson are both Icelandic citizens. The only non-Icelandic investor is Eykon Energy's chief geologist, Norwegian citizen Terje Hagevang. According to the spokesman, Hagevang "has studied the Jan Mayen ridge for decades and is considered to be one of the leading experts on the area." The spokesman said Eykon contacted CNOOC after it was granted time by Orkustofnun to find a partner for its second-round application. The two companies had not previously worked together. Eykon takes its name from the late Icelandic politician Eyjólfur Konrád Jónsson, known as Eykon, who worked to secure Iceland's rights and interest on the Jan Mayen ridge. He died in 1997 at the age of 68. Though China's $7 trillion economy dwarfs that of tiny Iceland, the Asian giant has gone out of its way to be friendly to the Arctic Council nation. It has established a large embassy in the Icelandic capital Reykjavik, and during a visit there in April 2012, then-Chinese premier Wen Jiabao and his counterpart Johanna Sigurdardottir agreed to "carry out close consultations on Arctic affairs and conduct pragmatic cooperation in the fields of polar regions, oceans, environment and shipping." Sigurdardottir, who held office as prime minister until May 23 this year, said at the time that Iceland supported China's participation in "peaceful exploration in the region." In February, ratings agency Fitch upgraded Iceland's credit rating to BBB from BBB-minus, saying the upgrade reflected the "impressive progress Iceland continues to make in recovering from the financial crisis of 2008-09." It said the economy grew a little over 2 per cent in 2012, and Iceland had continued to make progress with fiscal consolidation following its successful completion of a three-year International Monetary Fund-supported rescue program in August 2011. Geoff Hiscock writes on international business and is the author of "Earth Wars: The Battle for Global Resources," published by Wiley.