The Arctic's hydrocarbon potential is vast. Though the region represents only about 6% of the world's surface area, it could contain roughly a fifth of undiscovered global hydrocarbon reserves.

According to estimates by the U.S. Geological Survey, the Arctic may contain approximately 1,669 trillion cubic feet of natural gas, or roughly 30% of the world's undiscovered reserves, and some 90 billion barrels of oil, or 13% of the world's undiscovered oil reserves.

While recovering all that oil and gas faces a number of challenges, ranging from economic and logistical to regulatory and environmental, there are a couple of areas in the Arctic where companies see big opportunity -- Norway's Barents Sea and the Alaskan Arctic. Let's take a closer look at why three energy companies are so eager to drill in these regions.

A ship traversing Prudhoe Bay, a massive oil field on Alaska's North Slope. Photo Credit: Wikimedia Commons.

Barents Sea
Unlike many remote Arctic regions where production is constrained by an inhospitable climate, Norway's Barents Sea offers more favorable conditions for drilling such as shallower, less icy waters and a more bearable climate. It may also contain undiscovered resources totaling 8 billion barrels of oil equivalent, representing more than 40% of Norway's total undiscovered hydrocarbon reserves.

While the only currently producing field in the Barents Sea is Statoil's (EQNR 0.43%) Snohvit field, the world's most northerly offshore gas field, Statoil and Eni SpA (E 1.28%) are getting ready to start pumping oil from a major field in the Barents Sea -- the Goliat field. Production from the field, which is being developed using a floating, cylindrical production facility, is expected to begin in the third quarter of this year, with a maximum production capacity of 110,000 barrels of oil per day.

Goliat is one of a handful of major project start-ups this year and next that should help Statoil meet its target of 3% annual production growth through 2016. Others include Gudrun, Valemon, and Vilje South in the Norwegian Continental Shelf, Total-operated CLOV in Angola, and Chevron-operated Jack/St. Malo and Big Foot in the Gulf of Mexico.

Still, despite Statoil's big opportunities in the Barents Sea, regulatory changes pose a risk. Last year, for instance, the company was forced to delay an investment decision on its Johan Castberg oilfield in the Barents Sea because of an unexpected change in the tax law. In May, the Norwegian government unexpectedly raised taxes on oil and gas companies, which makes the economics of Johan Castberg and other regional projects less attractive.

Alaskan Arctic
In sharp contrast, a new, more favorable tax law has lured two leading oil producers to boost investment spending in the Alaskan Arctic -- another Arctic region where companies see major opportunity. The new law will charge energy producers a flat tax of 35%, eliminating the previous "progressivity" system adopted by former Gov. Sarah Palin that linked taxes to the price of oil.

As a result, BP (BP 1.56%) plans to increase its capital spending in the Alaskan Arctic by 25% to $1.2 billion this year, with about $1 billion of that budget allocated toward Alaska's Prudhoe Bay field, where the British oil giant has been drilling for decades. BP is also considering an additional $3 billion worth of investments in Prudhoe Bay and the nearby Milne Point Field over the next few years that could potentially increase its production by as much as 40,000 barrels per day.

The new tax law has also given ConocoPhillips (COP 1.32%) incentive to ramp up investment in the Alaskan Arctic. The company said last year that it plans to add another rig at its operations in the Kuparuk field -- North America's second largest oil field, located 40 miles west of Prudhoe Bay -- by early 2014 and plans to drill two exploratory wells west of the Alpine field.

Challenges remain
While overall Arctic drilling activity is expected to remain constrained over the next several years, the Alaskan Arctic and the Barents Sea should see stronger activity thanks to a favorable tax law in Alaska and relatively better operating conditions in the Barents Sea. Still, risks such as a sustained fall in oil prices and a change in tax laws remain and could cause companies like Statoil, BP, and ConocoPhillips to redeploy Arctic capital to more profitable opportunities within their global portfolios.