Emnekode: 317090 Navn på kandidat: Rodion Kravchenko Six seas: Comparative application of investment attractiveness methodology to Arctic offshore petroleum provinces Dato: 17. 05. 2016 Totalt antall sider: 97 Contents List of Tables ............................................................................................................................. 3 Summary ................................................................................................................................... 4 1. Introduction .......................................................................................................................... 5 2. Theoretical framework ...................................................................................................... 10 3. Methodology ....................................................................................................................... 15 4. Arctic resource extraction: challenges and opportunities .............................................. 17 Driving of the Arctic oil and gas development ............................................................................. 17 Obstacles to Arctic oil and gas development ................................................................................ 21 Conditions under which exploration activities in the Arctic region should be allowed to proceed ............................................................................................................................................. 24 Assessment ....................................................................................................................................... 26 5. Investment attractiveness: The Arctic dimension ........................................................... 28 Weather factors ............................................................................................................................... 32 The Barents Sea ............................................................................................................................ 32 The Kara Sea ................................................................................................................................ 35 The Laptev Sea ............................................................................................................................. 37 The Chukchi Sea ........................................................................................................................... 38 The Beaufort Sea .......................................................................................................................... 40 Baffin Bay..................................................................................................................................... 42 Weather factors comparison ......................................................................................................... 44 Geographical factors ....................................................................................................................... 49 The Barents Sea ............................................................................................................................ 49 The Kara Sea ................................................................................................................................ 50 The Laptev Sea ............................................................................................................................. 52 The Chukchi Sea ........................................................................................................................... 53 The Beaufort Sea .......................................................................................................................... 55 Baffin Bay..................................................................................................................................... 56 Geographical factors comparison ................................................................................................. 59 Oil and gas taxation systems .......................................................................................................... 63 Norway ......................................................................................................................................... 63 Russia............................................................................................................................................ 64 The United States of America ....................................................................................................... 65 Canada .......................................................................................................................................... 67 Greenland...................................................................................................................................... 69 Oil and gas taxation systems comparison ..................................................................................... 71 Investor protection .......................................................................................................................... 73 Sub-factors description ................................................................................................................. 73 “Investor protection” factor comparison ...................................................................................... 75 Investment attractiveness: comparison of the Arctic regions ..................................................... 76 6. Conclusions ......................................................................................................................... 83 7. Bibliography: ...................................................................................................................... 85 8. Appendix ............................................................................................................................. 95 2 List of Tables Table 1: Weather factors comparison ....................................................................................... 45 Table 2: Weather factors table of ranks ................................................................................... 48 Table 3: Geographical factors comparison ............................................................................... 59 Table 4: Geographical factors table of ranks ........................................................................... 62 Table 5: Petroleum taxation regimes comparison (the Arctic dimension) ............................... 71 Table 6: ”Investor protection” factor comparison .................................................................... 76 Table 7: Investment attractiveness comparative table of ranks ................................................ 78 Table 8: Investment attraciveness ranking of nine arctic offshore petroleum provinces ......... 82 3 Summary In the 2000s, Arctic energy sources development climbed to the top of the energy companies’ and authorities’ agendas. The necessity to increase production volumes and the desire to find new large oil and gas fields triggered investment flows into the Arctic. However, in 2014 the situation changed. The sudden oil price decline left most of the Arctic resources economically unviable and upended the strategic priorities of the main market players: booming investment was replaced by austerity measures. Previously it had been expected that the Arctic states would compete over the natural resources, but with low energy prices they started to compete for investment instead as only the most economically attractive projects could now be financed. This raises the question of the comparative attractiveness of different parts of the Arctic, as oil and gas companies choose where to invest their money. This thesis therefore develops a methodology for analyzing and comparing the investment attractiveness of Arctic offshore petroleum provinces and applies it to nine Arctic maritime areas spread across six Arctic seas. The nine areas are selected, assessed and compared on four dimensions that can affect their attractiveness for investment in oil and gas projects: climatic harshness, geography, petroleum taxation system and quality of investor protection. Based on this multidimensional analysis the Arctic Seas are ranked according to their investment attractiveness. The most attractive areas are the Russian Barents and Kara Seas and the Alaskan Chukchi Sea. Thereafter comes the Norwegian Barents Sea, followed by the Canadian Beaufort Sea, and then Canada’s Baffin Bay. The lowest ranked are the Laptev Sea, the Alaskan Beaufort Sea and Greenland’s Baffin Bay. The analysis represents quite a general and, to a certain extent, simplified approach and is intended only as a first step in the complex process of investment decision-making. 4 1. Introduction Thinking about the main idea of the future thesis, I wanted to develop something new, applied and complex. After several months of long and thorough examination I decided to write a work that would allow to overcome the gap between the physical characteristics of the Arctic region and the business climate dimension. That is how the following research problem was born: What is the investment attractiveness of different parts of the Arctic with regard to the development of oil and gas resources? Most of the papers about the Arctic are devoted either to geography or geopolitics. This thesis addresses the research problem by developing