The Arctic presents a tremendous opportunity for eager producers, though the assets in the region will prove to be less ideal than originally speculated.

In 2000, engineering firm Fugro-Robertson placed the global yet-to-find reserves at 864 billion barrels of oil equivalent (BOE) of which 51% is oil. The Arctic represents approximately one-fifth of global yet-to-find potential.

"This oil/gas mix is not ideal because remote gas is often much harder to transport to markets," Andrew Latham, vice president of upstream research and consulting firm Wood Mackenzie, said at a recent event in Houston.

It would take some 10 to 15 years following the completion of pipelines before the full potential of the Arctic region is realized, he added. Without export infrastructure in many of the regions, particularly Russia, a large portion of the gas reserves are unlikely to be produced prior to 2050.

The 16 Arctic basins have discovered reserves of 233 billion BOE (85% gas) and estimated yet-to-find potential of 166 billion BOE (74% gas). This is less than one-quarter of the hydrocarbon reserves that analysts originally speculated to be in the region. Latham said investors and explorers shouldn't expect Arctic reserves to be a viable alternative to decrease control OPEC members have on hydrocarbon markets.

"While these results are disappointing to the U.S. as a whole, the Arctic still holds great potential for individual oil and gas companies with the advanced technology, money and time to develop the challenging resources and build the infrastructure required to transport it."

While a portion of the assets are accessible on land, the majority are under water. "In terms of exploration potential, the lion's share is offshore."

Half of the hydrocarbons are in the South Kara/Yamal Basin in Siberia. That and reserves in the East Barents Sea represent more than 1 billion BOE and features a breakeven price of less than $20 per BOE for field development. The average breakeven price for the Arctic is $30 per BOE.

However, a larger resource does not mean the highest returns. Also, it will be necessary to adapt proven technology to meet Arctic conditions for most basins, including the latest advances in metallurgy, he added.

The reserves with the highest full-cycle returns (more than 20%) are in the North Slope in Alaska and the Pechora Sea in Russia, both of which feature existing pipeline infrastructure.

The second-most potentially profitable (10% to 15% full-cycle returns) regions include South Kara/Yamal and the Laptev Sea basins in Russia and the Beaufort/Mackenzie Basin of Canada. Average field-development cost is $6 per BOE.

Another impediment to exploration in some areas is laws and restrictions. Greenland is allowing exploration in its Kronprins Christian Basin offshore its east coast, but has denied exploration on a considerable section offshore its west coast. Norway is likewise restricting offshore drilling opportunities. Latham said, however, the policies are not as restrictive as those of many Latin American countries.

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