Dr Gudni A Johannesson Director General Hydrocarbon Exploration in Iceland Policy, plans and preparations for the 1st round of exclusive licenses Dr Gudni A Johannesson Director General APPEX London 5-7 March 2008

Overview Policy Plans Preparations for 1st round Legal framework Licensing terms Plans Location Timeframe Preparations for 1st round Hydrocarbon potential Strategic environmental assessment - SEA Tax environment

Legal framework EU legislation applies in many important areas, as Iceland belongs to the European Economic Area – like Norway EU Directive 94/22/EC on the conditions for granting and using authorizations for the prospection, exploration and production of hydrocarbons has been transposed into Icelandic Parliamentary Act No.13/2001on Prospecting, Exploration and Production of Hydrocarbons Other relevant EU legislation, e.g. on health, safety and environmental issues (HSE), has been transposed into Icelandic law Iceland has ratified the OSPAR convention and the MARPOL protocol

Licensing terms Open door policy for non-exclusive prospecting licenses Exclusive licenses for the exploration and production of hydrocarbons in the Dreki area Duration of exploration licenses 12 years, maximum 16 years Priority for a production license for up to 30 years Group applications (joint ventures) are welcome Transferable licenses (subject to permission) Licenses may cover one or more block(s) or parts of block(s) – reference grid with 15’N-Sx20’E-W blocks Phased work programmes negotiable Treaty with Norway on 30% of the area, where Norway may participate with up to 25% share

Northern Dreki Area Location 67°N to 68°30’N 6°20’W to 11°30’W Area 42,700 km2 Norway may participate with 25% in 30% of the area Water depth 1,000 to 2,000 m in 80% of the area Bergrisi Dreki Gammur Iceland GeoSurvey 2008 Northern Dreki licensing round

Timeframe Tentative starting date of licensing round 15 January 2009 Tentative deadline for applications 15 April 2009 Assessment of applications and subsequent negotiations expected to last 2-3 months Strategic environmental assessment (SEA) finished, no major obstacles identified Programme of ongoing and planned further research on natural conditions based on SEA

Hydrocarbon potential Two major sources for 2D seismic reflection data that have been put up for sale Norwegian-Icelandic governmental surveys 1985 and 1988, available from NPD in Norway InSeis speculative non-exclusive survey 2001 available from Wavefield-InSeis General conclusions The Jan Mayen ridge is a sliver of a continental crust Sedimentary rocks are of sufficient thickness and age Sedimentary strata pre-dating the opening of the N-Atlantic Potential source rocks similar to E-Greenland Potential reservoir rocks, including submarine fans Potential traps, both structural and stratigraphic Seismic anomalies indicating that hydrocarbons may be present

The Jan Mayen microcontinent Bott 1985

Gunnarsson, Sand & Gudlaugsson, 1989

Geology of the Dreki Area Sheet of basalt intrusives Wedge of lava flows Listric fault complex Transverse structural/ volcanic high Sills above lavas Normal fault Reverse fault From Åkermoen 1989 Iceland GeoSurvey2008

Example of a seismic profile Bright reflections, gas? Shale caprock ? Sandstone reservoir ? Wavefield Inseis 2006

Strategic environmental assessment - SEA Licensing plan has passed a SEA process State of knowledge on: Climate including sea-ice, waves, currents, marine biology, fish stocks, mammals and birds No major obstacles identified Frequent fogs during summer, some occurences of icing during winter No sea-ice under present climatic conditions

Tax environment General corporate income tax 15%, the second lowest in the OECD countries Taxes on profits and/or production fees on oil operations are under consideration Will be determined before the licensing round begins Clear aim to be competitive with regard to neighbouring countries

Summary EU-like legal framework Licensing terms flexible Norway may participate in a certain area License round starting in January 2009 2D seismic data available from two sources Indications: Hydrocarbons may be present SEA process passed successfully Very low corporate income tax, competitive petroleum taxation under consideration